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File No. 811-7436
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 8
(X) ---
THE DFA INVESTMENT TRUST COMPANY
(Exact Name of Registrant as Specified in Charter)
1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401
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(Address of Principal Executive Offices (Zip Code)
Registrant's Telephone Number, Including Area Code (310) 395-8005
Irene R. Diamant, 1299 Ocean Avenue, 11th Floor, Santa Monica CA 90401
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(Name and Address of Agent for Service of Process)
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Please Send Copy of Communications to:
Stephen W. Kline, Esq.
Stradley, Ronon, Stevens & Young, LLP
Great Valley Corporate Center
30 Valley Stream Parkway
Malvern, Pennsylvania 19355
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THE DFA INVESTMENT TRUST COMPANY
The U.S. 6-10 Small Company Series
The Japanese Small Company Series
The United Kingdom Small Company Series
The Pacific Rim Small Company Series
The Continental Small Company Series
The U.S. Large Company Series
The Enhanced U.S. Large Company Series
The DFA One-Year Fixed Income Series
The DFA Two-Year Corporate Fixed Income Series
The DFA Two-Year Global Fixed Income Series
The DFA Two-Year Government Series
The U.S. Small Cap Value Series
The U.S. Large Cap Value Series
The DFA International Value Series
The Emerging Markets Series
The Emerging Markets Small Cap Series
FORM N-1A, Part A:
Responses to Items 1 through 3 have been omitted pursuant to paragraph 4 of
Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT
(a)(i) The DFA Investment Trust Company (the "Trust") is an open-end
management investment company organized as a Delaware business trust on October
27, 1992 and registered under the Investment Company Act of 1940. The Trust
issues sixteen series, each of which operates as a diversified investment
company and represents a separate class ("Series") of the Trust's shares of
beneficial interest: The U.S. 6-10 Small Company Series, The Japanese Small
Company Series, The United Kingdom Small Company Series, The Pacific Rim Small
Company Series, The Continental Small Company Series, The U.S. Large Company
Series, The Enhanced U.S. Large Company Series, The DFA One-Year Fixed Income
Series, The DFA Two-Year Corporate Fixed Income Series, The DFA Two-Year Global
Fixed Income Series, The DFA Two-Year Government Series, The U.S. Small Cap
Value Series, The U.S. Large Cap Value Series, The DFA International Value
Series, The Emerging Markets Series and The Emerging Markets Small Cap Series.
Dimensional Fund Advisors Inc. (the "Advisor") serves as investment advisor to
each of the Series.
The investment objectives, policies and investment limitations of each Series
are set forth below. The investment objective of a Series may not be changed
without the affirmative vote of a majority of the outstanding voting securities
of that Series. The Trust sells its shares to institutional investors only.
Shares of each Series may be issued for cash and/or securities in
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which a Series is authorized to invest. In addition, when acquiring securities
from an institutional investor in consideration of the issuance of its shares, a
Series may accept securities from the transferor which it would not otherwise
purchase pursuant to its investment policies, as described below. Any such
acquisition would be very small in relation to the then total current value of
the assets acquired by a Series in any such transaction.
(a)(ii)
INVESTMENT OBJECTIVE AND POLICIES - SMALL COMPANY SERIES
The U.S. 6-10 Small Company, Japanese Small Company, Pacific Rim Small Company,
United Kingdom Small Company and Continental Small Company Series of the Trust
(the "Small Company Series"), each operate as a diversified investment company
whose investment objective is to achieve long-term capital appreciation. The
Small Company Series provide investors with access to securities portfolios
consisting of small U.S., Japanese, United Kingdom, European and Pacific Rim
companies. Company size will be determined for purposes of these Series solely
on the basis of a company's market capitalization. "Market capitalization" will
be calculated with respect to domestic securities, by multiplying the price of a
company's stock by the number of its shares of common stock, or with respect to
foreign securities similar stocks which are outstanding.
The Small Company Series will be structured to reflect reasonably the relative
market capitalizations of its portfolio companies. The Advisor believes that
over the long term the investment performance of small companies is superior to
large companies, not only in the U.S. but in other developed countries as well,
and that investment in the Series is an effective way to improve global
diversification. Investors which, for a variety of reasons, may choose not to
make substantial, or any, direct investment in companies whose securities will
be held by the Small Company Series, may participate in the investment
performance of these companies through ownership of a Series' stock.
THE U.S. 6-10 SMALL COMPANY SERIES
The U.S. 6-10 Small Company Series (the "U.S. 6-10 Series") will invest in a
broad and diverse group of small U.S. companies having readily marketable
securities. References in this registration statement to a "small U.S. company"
mean a company whose securities are traded in the U.S. securities markets and
whose market capitalization is not larger than the largest of those in the
smaller one-half (deciles 6 through 10) of companies listed on the New York
Stock Exchange ("NYSE"). The Series will purchase common stocks of companies
whose shares are listed on
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the NYSE, the American Stock Exchange ("AMEX") and traded in the over-the-
counter market ("OTC"). The 6-10 Series may invest in securities of foreign
issuers which are traded in the U.S. securities markets, but such investments
may not exceed 5% of the gross assets of the Series. It is the intention of the
U.S. 6-10 Series to acquire a portion of the common stock of each eligible NYSE,
AMEX and OTC company on a market capitalization weighted basis. In the future,
the U.S. 6-10 Series may purchase common stocks of small U.S. companies which
are listed on other U.S. securities exchanges. In addition, the Series is
authorized to invest in private placements of interest-bearing debentures that
are convertible into common stock. Such investments are considered illiquid,
and the value thereof together with the value of all other illiquid investments
may not exceed 15% of the value of the Series' assets at the time of purchase.
THE JAPANESE SMALL COMPANY SERIES
The Japanese Small Company Series (the "Japanese Series") will invest in a broad
and diverse group of readily marketable stocks of Japanese small companies which
are traded in the Japanese securities markets. Reference in this prospectus to
the term "Japanese small company" means a company located in Japan whose market
capitalization is not larger than the largest of those in the smaller one-half
(deciles 6 through 10) of companies whose securities are listed on the First
Section of the Tokyo Stock Exchange ("TSE").
While the Japanese Series will invest primarily in the stocks of small companies
which are listed on the TSE, it may acquire the stocks of Japanese small
companies which are traded in other Japanese securities markets as well. It is
the intention of the Japanese Series to acquire a portion of the stock of each
of these companies on a market capitalization weighted basis. The Japanese
Series also may invest up to 5% of its assets in convertible debentures issued
by Japanese small companies. (See "INVESTMENT OBJECTIVES AND POLICIES - SMALL
COMPANY SERIES - Portfolio Structure.")
THE UNITED KINGDOM SMALL COMPANY SERIES
The United Kingdom Small Company Series (the "United Kingdom Series") will
invest in a broad and diverse group of readily marketable stocks of United
Kingdom small companies which are traded principally on the International Stock
Exchange of the United Kingdom and the Republic of Ireland ("ISE"). Reference
in this prospectus to a "United Kingdom small company" means a company organized
in the United Kingdom, with shares listed on the ISE whose market capitalization
is not larger than the largest of those in the smaller one-half (deciles 6
through 10) of companies included in the Financial Times-Actuaries All Share
Index ("FTA").
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The FTA is an index of stocks traded on the ISE, which is similar to the S&P 500
Index, and is used by investment professionals in the United Kingdom for the
same purposes as investment professionals in the U.S. use the S&P 500 Index.
While the FTA will be used by the United Kingdom Series to determine the maximum
market capitalization of any company whose stock the Series will purchase,
acquisitions by the United Kingdom Series will not be limited to stocks which
are included in the FTA. The United Kingdom Series will not, however, purchase
shares of any investment trust or of any company whose market capitalization is
less than $5,000,000.
It is the intention of the United Kingdom Series to acquire a portion of the
stock of each eligible company on a market capitalization basis. The United
Kingdom Series also may invest up to 5% of its assets in convertible debentures
issued by United Kingdom small companies. (See "INVESTMENT OBJECTIVES AND
POLICIES - SMALL COMPANY SERIES - Portfolio Structure.")
THE CONTINENTAL SMALL COMPANY SERIES
The Continental Small Company Series (the "Continental Series") is authorized to
invest in readily marketable stocks of a broad and diverse group of small
companies organized under the laws of certain European countries; specifically,
France, Germany, Italy, Switzerland, the Netherlands, Sweden, Belgium, Norway,
Spain, Austria, Finland and Denmark, whose shares are traded principally in
securities markets located in those countries. Company size will be determined
by the Advisor in a manner that will compare the market capitalizations of
companies in all countries in which the Continental Series invests (i.e., on a
European basis). The Advisor will use the appropriate country indices of the
Financial Times-Actuaries World Index ("FTW") converted to a common currency,
the United States dollar, and aggregated to define "small companies." The FTW
consists of a series of country indices which contain generally the largest
companies in the major industry sectors in proportion to their market
capitalization whose shares are available for purchase by non-resident
investors. Its constituents represent about 70% of the total market
capitalization of the respective markets. Companies with publicly traded stock
whose market capitalizations are not greater than the largest of those in the
smallest 20% (9th and 10th deciles) of companies listed in the FTW as combined
for the countries in which the Continental Series invests will be considered to
be "small companies" and will be eligible for purchase by the Continental
Series.
While the Advisor will use the aggregated FTW indices to determine the maximum
size of eligible portfolio companies, portfolio acquisitions will not be limited
to stocks listed on the FTW for any country. The Continental Series does not
intend, however, to purchase shares of any company whose market
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capitalization is less than the equivalent of $5,000,000. The Continental
Series intends to acquire a portion of the stock of each eligible company on a
market capitalization basis. The Continental Series also may invest up to 5% of
its assets in convertible debentures issued by European small companies. The
Continental Series has acquired the stocks of small companies located in France,
Germany, Italy, Switzerland, the Netherlands, Belgium, Sweden and Spain. When
the Advisor determines that the investments of the Continental Series in the
stocks of small companies in those countries are sufficiently diverse, the
stocks of small companies located in other European countries may be acquired on
a country-by-country basis. In addition, the Advisor may in its discretion
either limit further investments in a particular country or divest the
Continental Series of holdings in a particular country. (See "INVESTMENT
OBJECTIVES AND POLICIES - SMALL COMPANY SERIES - Portfolio Structure.")
THE PACIFIC RIM SMALL COMPANY SERIES
The Pacific Rim Small Company Series (the "Pacific Rim Series") is authorized to
invest in stocks of a broad and diverse group of small companies located in
Australia, New Zealand and Asian countries whose shares are traded principally
on the securities markets located in those countries. The Pacific Rim Series
presently invests in small companies located in Singapore, Hong Kong, Australia,
Malaysia and Korea. In the future, the Advisor may add small companies located
in New Zealand and other Asian countries as securities markets in these
countries become accessible. In addition, the Advisor may in its discretion
either limit further investments in a particular country or divest the Pacific
Rim Series of holdings in a particular country.
Company size will be determined by the Advisor in a manner that will compare the
market capitalizations of the companies in all countries in which the Pacific
Rim Series invests (i.e., on a Pacific Rim basis). The Advisor will use the
appropriate country indices of the FTW converted to a common currency and
aggregated to define "small companies." Companies with publicly traded stock
whose market capitalizations are not greater than the largest of those in the
smallest 30% of companies (8th, 9th and 10th deciles) listed in the FTW as
combined for the countries in which the Pacific Rim Series invests will be
considered to be "small companies" and will be eligible for purchase by the
Pacific Rim Series.
While the Advisor will use the aggregated FTW indices to determine the maximum
size of eligible portfolio companies, portfolio acquisitions will not be limited
to stocks listed on the FTW for any country. The Pacific Rim Series does not
intend to purchase shares of any company whose market capitalization is less
than $5,000,000. The Pacific Rim Series intends to acquire
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a portion of the stock of each eligible company on a market capitalization
basis. The Pacific Rim Series also may invest up to 5% of its assets in
convertible debentures issued by small companies located in the Pacific Rim.
(See "INVESTMENT OBJECTIVES AND POLICIES - SMALL COMPANY PORTFOLIOS - Portfolio
Structure.")
PORTFOLIO STRUCTURE
The Small Company Series, are structured by generally basing the amount of each
security purchased on the issuer's relative market capitalization with a view to
creating in each Series a reasonable reflection of the relative market
capitalizations of its portfolio companies. The following discussion applies to
the investment policies of the Small Company Series.
The decision to include or exclude the shares of an issuer will be made on the
basis of such issuer's relative market capitalization determined by reference to
other companies located in the same country; except with respect to Continental
and Pacific Rim Series, such determination shall be made by reference to other
companies located in all countries in which the Series invest. Company size is
measured in terms of local currencies in order to eliminate the effect of
variations in currency exchange rates, except that Continental and Pacific Rim
Series each will measure company size in terms of a common currency. Even
though a company's stock may meet the applicable market capitalization
criterion, it may not be purchased if, (i) in the Advisor's judgment, the issuer
is in extreme financial difficulty, (ii) the issuer is involved in a merger or
consolidation or is the subject of an acquisition or (iii) a significant portion
of the issuer's securities are closely held. Further, securities of real estate
investment trusts will not be acquired (except as a part of a merger,
consolidation or acquisition of assets). In addition, the Advisor may exclude
the stock of a company that otherwise meets applicable market capitalization
criterion if the Advisor determines in its best judgment that other conditions
exist that make the purchase of such stock inappropriate.
Deviation from strict market capitalization weighting will also occur because
the Advisor intends to purchase round lots only. Furthermore, in order to
retain sufficient liquidity, the relative amount of any security held may be
reduced from time to time from the level which strict adherence to market
capitalization weighting would otherwise require. A portion, but generally not
in excess of 20%, of assets may be invested in interest-bearing obligations,
such as money-market instruments for this purpose, thereby causing further
deviation from strict market capitalization weighting.
Block purchases of eligible securities may be made at opportune prices even
though such purchases exceed the number of shares which, at the time of
purchase, strict adherence to the policy of
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market capitalization weighting would otherwise require. In addition, each
Small Company Series may, in exchange for the issuance of shares, acquire
securities eligible for purchase or otherwise represented in their portfolios at
the time of the exchange. (See "In Kind Purchases in Item 7(a).") While such
purchases and acquisitions might cause a temporary deviation from market
capitalization weighting, they would ordinarily be made in anticipation of
further growth of assets.
If securities must be sold in order to obtain funds to make redemption payments,
they may be repurchased as additional cash becomes available. In most
instances, however, management would anticipate selling securities which had
appreciated sufficiently to be eligible for sale and, therefore, would not need
to repurchase such securities. (See "INVESTMENT OBJECTIVES AND POLICIES - SMALL
COMPANY SERIES - Portfolio Transactions.")
Changes in the composition and relative ranking (in terms of market
capitalization) of the stocks which are eligible for purchase take place with
every trade when the securities markets are open for trading due, primarily, to
price fluctuations of such securities. On a not less than semi-annual basis,
the Advisor will determine the market capitalization of the largest small
company eligible for investment. Common stocks whose market capitalizations
are not greater than such company will be purchased. Additional investments
generally will not be made in securities which have appreciated in value
sufficiently to be excluded from the Advisor's then current market
capitalization limit for eligible portfolio securities. This may result in
further deviation from strict market capitalization weighting and such deviation
could be substantial if a significant amount of holdings increase in value
sufficiently to be excluded from the limit for eligible securities, but not by a
sufficient amount to warrant their sale. (See "INVESTMENT OBJECTIVES AND
POLICIES - SMALL COMPANY PORTFOLIOS - Portfolio Transactions.") A further
deviation from market capitalization weighting may occur if a Series invests a
portion of its assets in convertible debentures.
It is management's belief that the stocks of small companies offer, over a long
term, a prudent opportunity for capital appreciation, but, at the same time,
selecting a limited number of such issues for investment involves greater risk
than investing in a large number of them. Each Small Company Series intends to
invest at least 80% of its assets in equity securities of U.S., Japanese, United
Kingdom, European and Pacific Rim small companies, as described above.
Generally, current income is not sought as an investment objective, and
investments will not be based upon an issuer's dividend payment policy or
record. However, many of the companies whose securities will be selected for
investment do pay dividends. It is anticipated, therefore, that dividend income
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will be received. Also, each Small Company Series may lend securities to
qualified brokers, dealers, banks and other financial institutions for the
purpose of realizing additional income. (See "Securities Loans" under Item
4(a)(ii).)
PORTFOLIO TRANSACTIONS
On a periodic basis, the Advisor will review the holdings of each of the Small
Company Series and determine which, at the time of such review, are no longer
considered small U.S., Japanese, United Kingdom, European or Pacific Rim
companies. The present policy of the Advisor (except with respect to the U.S.
6-10 Series) is to consider portfolio securities for sale when they have
appreciated sufficiently to rank, on a market capitalization basis, more than
one full decile higher than the company with the largest market capitalization
that is eligible for purchase by the particular Small Company Series as
determined periodically by the Advisor. As of the date of this registration
statement, the Advisor has established the following policy with respect to the
U.S. 6-10 Series: securities held by the Series which have appreciated in value
will be considered for sale when the market capitalization of the issuer has
increased sufficiently to rank it in the largest 45% (deciles 4.5 through 1)
based on market capitalization of securities listed on the NYSE. The Advisor
may, from time to time, revise such policies if, in the opinion of the Advisor,
such revision is necessary to maintain appropriate market capitalization
weighting.
Securities which have depreciated in value since their acquisition will not be
sold solely because prospects for the issuer are not considered attractive, or
due to an expected or realized decline in securities prices in general.
Securities may be disposed of, however, at any time when, in the Advisor's
judgment, circumstances, such as (but not limited to) tender offers, mergers and
similar transactions, or bids made for block purchases at opportune prices,
warrant their sale. Generally, securities will not be sold to realize
short-term profits, but when circumstances warrant, they may be sold without
regard to the length of time held. Generally, securities will be purchased with
the expectation that they will be held for longer than one year and will be held
until such time as they are no longer considered an appropriate holding in light
of the policy of maintaining portfolios of companies with small market
capitalizations.
THE U.S. LARGE COMPANY SERIES
The U.S. Large Company Series seeks, as its investment objective, to approximate
the investment performance of the Standard & Poor's 500 Composite Stock Index
(the "S&P 500 Index"), both in terms of the price of the Series' shares and its
total investment return. The Series intends to invest in all of the stocks that
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comprise the S&P 500 Index in approximately the same proportions as they are
represented in the Index. The amount of each stock purchased for the Series,
therefore, will be based on the issuer's respective market capitalization. The
S&P 500 Index is comprised of a broad and diverse group of stocks most of which
are traded on the NYSE. Generally, these are the U.S. stocks with the largest
market capitalizations and, as a group, they represent approximately 70% of the
total market capitalization of all publicly traded U.S. stocks. Under normal
market conditions, at least 95% of the Series' assets will be invested in the
stocks that comprise the S&P 500 Index.
Ordinarily, portfolio securities will not be sold except to reflect additions or
deletions of the stocks that comprise the S&P 500 Index, including mergers,
reorganizations and similar transactions and, to the extent necessary, to
provide cash to pay redemptions of the Series' shares. The Series may lend
securities to qualified brokers, dealers, banks and other financial institutions
for the purpose of earning additional income. For information concerning
Standard & Poor's Corporation ("S&P") and disclaimers of S&P with respect to the
Series, see "STANDARD & POOR'S INFORMATION AND DISCLAIMERS," below.
THE ENHANCED U.S. LARGE COMPANY SERIES
The Enhanced U.S. Large Company Series seeks, as its investment objective, to
achieve a total return which exceeds the total return performance of the S&P 500
Index. The Series may invest in all of the stocks represented in the S&P 500
Index, options on stock indices, stock index futures, options on stock index
futures, swap agreements on stock indices and, to the extent permissible
pursuant to the Investment Company Act of 1940, shares of investment companies
that invest in stock indices. The S&P 500 Index is comprised of a broad and
diverse group of stocks most of which are traded on the NYSE. Generally, these
are the U.S. stocks with the largest market capitalizations and, as a group,
they represent approximately 70% of the total market capitalization of all
publicly traded U.S. stocks.
The Series may, from time to time, also invest in options on stock indices,
stock index futures, options on stock index futures and swap agreements based on
indices other than, but similar to, the S&P 500 Index (such instruments whether
or not based on the S&P 500 Index hereinafter collectively referred to as "Index
Derivatives"). The Series may invest all of its assets in Index Derivatives
(See Item 4(c) "Risk Factors - All Series"). Assets of the Series not invested
in S&P 500 stocks or Index Derivatives may be invested in the same types of
short-term fixed income obligations as may be acquired by The DFA Two-Year
Global Fixed Income Series and, to the extent allowed by the Investment Company
Act of 1940, shares of money market mutual funds (collectively, "Fixed Income
Investments"). (See "INVESTMENT
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OBJECTIVES AND POLICIES - FIXED INCOME SERIES - Description of Investments.")
Investments in the securities of other investment companies will involve
duplication of certain fees and expenses.
The percentage of assets of the Series that will be invested at any one time in
S&P 500 Index stocks, Index Derivatives and Fixed Income Investments may vary
from time to time, within the discretion of the Advisor and according to
restraints imposed by the Investment Company Act of 1940. The Series will
maintain a segregated account consisting of liquid assets (or, as permitted by
applicable regulation, enter into offsetting positions) to cover its open
positions in Index Derivatives to avoid leveraging of the Series.
The Series will enter into positions in futures and options on futures only to
the extent such positions are permissible with respect to applicable rules of
the Commodity Futures Trading Commission without registering the Series or the
Trust as a commodities pool operator. In addition, the Series may not be able
to utilize Index Derivatives to the extent otherwise permissible or desirable
because of constraints imposed by the Internal Revenue Code or by unanticipated
illiquidity in the marketplace for such instruments. For more information about
Index Derivatives, see Item 4(c) "Risk Factors - All Series."
The Series may only purchase put and call options to the extent premiums paid on
all such outstanding options do not exceed 20% of the Series' net assets. With
regard to the writing of put options, the Series will limit the aggregate value
of the obligations underlying such put options to 50% of its net assets. It is
the position of the Securities and Exchange Commission that over-the-counter
options are illiquid. Accordingly, the Series will invest in such options only
to the extent consistent with its 15% limit on investment in illiquid
securities.
STANDARD AND POOR'S - INFORMATION AND DISCLAIMERS
Neither The U.S. Large Company Series or The Enhanced U.S. Large Company Series
(together, the "Large Company Series") are sponsored, endorsed, sold or promoted
by S&P. S&P makes no representation or warranty, express or implied, to the
owners of the Large Company Series or any member of the public regarding the
advisability of investing in securities generally or in the Large Company Series
particularly or the ability of the S&P 500 Index to track general stock market
performance. S&P's only relationship to the Large Company Series is the
licensing of certain trademarks and trade names of S&P and of the S&P 500 Index
which is determined, composed and calculated by S&P without regard to the Large
Company Series. S&P has no obligation to take the needs of the Large Company
Series or their respective owners into consideration in determining, composing
or
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calculating the S&P 500 Index. S&P is not responsible for and has not
participated in the determination of the prices and amount of the Large Company
Series or in the issuance or sale of the Large Company Series or in the
determination or calculation of the equation by which the Large Company Series
are to be converted into cash. S&P has no obligation or liability in connection
with the administration, marketing or trading of the Large Company Series.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500 INDEX
OR ANY DATA INCLUDED THEREIN, AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN.
S&P MAKES NO EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY
OF THE FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL,
PUNITIVE, INDIRECT, OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF
NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
INVESTMENT OBJECTIVES AND POLICIES - FIXED INCOME SERIES
THE DFA ONE-YEAR FIXED INCOME SERIES
The investment objective of The DFA One-Year Fixed Income Series is to achieve
a stable real value (i.e. a return in excess of the rate of inflation) of
invested capital with a minimum of risk. The Series will pursue its objective
by investing its assets in U.S. government obligations, U.S. government agency
obligations, dollar-denominated obligations of foreign issuers issued in the
U.S., bank obligations, including U.S. subsidiaries and branches of foreign
banks, corporate obligations, commercial paper, repurchase agreements and
obligations of supranational organizations. Generally, the Series will acquire
obligations which mature within one year from the date of settlement, but
substantial investments may be made in obligations maturing within two years
from the date of settlement when greater returns are available. It is the
Series' policy that the weighted average length of maturity of investments will
not exceed one year. The Series principally invests in certificates of deposit,
commercial paper, bankers' acceptances, notes and bonds. The Series will invest
more than 25% of its total assets in obligations of U.S. and/or foreign banks
and bank holding companies when the yield to maturity on these instruments
exceeds the yield to maturity on all other eligible portfolio investments of
similar quality for a period of five consecutive days when the NYSE is open for
trading. (See "Investments in the Banking Industry" in Item 4(a)(ii).)
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THE DFA TWO-YEAR CORPORATE FIXED INCOME SERIES
The investment objective of The DFA Two-Year Corporate Fixed Income Series is to
maximize total returns consistent with the preservation of capital. The Series
will invest in U.S. government obligations, U.S. government agency obligations,
dollar-denominated obligations of foreign issuers issued in the U.S., bank
obligations, including U.S. subsidiaries and branches of foreign banks,
corporate obligations, commercial paper, repurchase agreements and obligations
of supranational organizations. It is the Series' policy to acquire obligations
which mature within two years from the date of settlement. The Series
principally invests in certificates of deposit, commercial paper, bankers'
acceptances, notes and bonds. The Series will invest more than 25% of its total
assets in obligations of U.S. and/or foreign banks and bank holding companies
when the yield to maturity on these instruments exceeds the yield to maturity on
all other eligible portfolio investments of similar quality for a period of five
consecutive days when the NYSE is open for trading. (See "Investments in the
Banking Industry" in Item 4(a)(ii).)
THE DFA TWO-YEAR GLOBAL FIXED INCOME SERIES
The investment objective of The DFA Two-Year Global Fixed Income Series is to
maximize total returns consistent with preservation of capital. The Series will
invest in obligations issued or guaranteed by the U.S. and foreign governments,
their agencies and instrumentalities, corporate debt obligations, bank
obligations, commercial paper, repurchase agreements, obligations of other
domestic and foreign issuers having quality ratings meeting the minimum
standards described in "Description of Investments," securities of domestic or
foreign issuers denominated in U.S. dollars but not trading in the United
States, and obligations of supranational organizations, such as the World Bank,
the European Investment Bank, European Economic Community and European Coal and
Steel Community. At the present time, the Advisor expects that most investments
will be made in the obligations of issuers which are in developed countries,
such as those countries which are members of the Organization of Economic
Cooperations and Development ("OECD"). However, in the future, the Advisor
anticipates investing in issuers located in other countries as well. Under
normal market conditions, the Series will invest at least 65% of the value of
its assets in issuers organized or having a majority of their assets in, or
deriving a majority of their operating income in, at least three different
countries, one of which may be the United States.
The Series will acquire obligations which mature within two years from the date
of settlement. Because many of the Series' investments will be denominated in
foreign currencies, the Series will also enter into forward foreign currency
contracts solely
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for the purpose of hedging against fluctuations in currency exchange rates. The
Series will invest more than 25% of its total assets in obligations of U.S.
and/or foreign banks and bank holding companies when the yield to maturity on
these instruments exceeds the yield to maturity on all other eligible portfolio
investments of similar quality for a period of five consecutive days when the
NYSE is open for trading. (See "Investments in the Banking Industry" in Item
4(a)(ii).)
THE DFA TWO-YEAR GOVERNMENT SERIES
The investment objective of The DFA Two-Year Government Series is to maximize
total returns available from the universe of debt obligations of the U.S.
government and U.S. government agencies and consistent with the preservation of
capital. Generally, the Series will acquire U.S. government obligations and
U.S. government agency obligations that mature within two years from the date of
settlement. The Series will also acquire repurchase agreements.
DESCRIPTION OF INVESTMENTS
The following is a description of the categories of investments which may be
acquired by The DFA One-Year Fixed Income Series, Two-Year Corporate Fixed
Income Series, Two-Year Government Series and Two-Year Global Fixed Income
Series (the "Fixed Income Series").
Permissible
Categories:
-----------
The DFA One-Year Fixed Income Series 1-6, 8
The DFA Two-Year Corporate Fixed Income Series 1-6, 8
The DFA Two-Year Government Series 1, 2, 6
The DFA Two-Year Global Fixed Income Series 1-10
1. U.S. GOVERNMENT OBLIGATIONS - Debt securities issued by the U.S.
Treasury which are direct obligations of the U.S. government, including bills,
notes and bonds.
2. U.S. GOVERNMENT AGENCY OBLIGATIONS - Issued or guaranteed by U.S.
government-sponsored instrumentalities and federal agencies, including the
Federal National Mortgage Association, Federal Home Loan Bank and the Federal
Housing Administration.
3. CORPORATE DEBT OBLIGATIONS - Non-convertible corporate debt securities
(e.g., bonds and debentures) which are issued by companies whose commercial
paper is rated Prime-1 by Moody's Investors Services, Inc. ("Moody's") or A-1 by
S&P and dollar-denominated obligations of foreign issuers issued in the U.S. If
the issuer's commercial paper is unrated, then the debt security
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would have to be rated at least AA by S&P or Aa2 by Moody's. If there is
neither a commercial paper rating nor a rating of the debt security, then the
Advisor must determine that the debt security is of comparable quality to
equivalent issues of the same issuer rated at least AA or Aa2.
4. BANK OBLIGATIONS - Obligations of U.S. banks and savings and loan
associations and dollar-denominated obligations of U.S. subsidiaries and
branches of foreign banks, such as certificates of deposit (including marketable
variable rate certificates of deposit) and bankers' acceptances. Bank
certificates of deposit will only be acquired from banks having assets in excess
of $1,000,000,000.
5. COMMERCIAL PAPER - Rated, at the time of purchase, A-1 or better by
S&P or Prime-1 by Moody's, or, if not rated, issued by a corporation having an
outstanding unsecured debt issue rated Aaa by Moody's or AAA by S&P, and having
a maximum maturity of nine months.
6. REPURCHASE AGREEMENTS - Instruments through which the Series purchase
securities ("underlying securities") from a bank, or a registered U.S.
government securities dealer, with an agreement by the seller to repurchase the
security at an agreed price, plus interest at a specified rate. The underlying
securities will be limited to U.S. government and agency obligations described
in (1) and (2) above. The Series will not enter into a repurchase agreement
with a duration of more than seven days if, as a result, more than 10% of the
value of the Series' total assets would be so invested. The Series will also
only invest in repurchase agreements with a bank if the bank has at least
$1,000,000,000 in assets and is approved by the Investment Committee of the
Advisor. The Advisor will monitor the market value of the securities plus any
accrued interest thereon so that they will at least equal the repurchase price.
7. FOREIGN GOVERNMENT AND AGENCY OBLIGATIONS - Bills, notes, bonds and
other debt securities issued or guaranteed by foreign governments, or their
agencies and instrumentalities.
8. SUPRANATIONAL ORGANIZATION OBLIGATIONS - Debt securities of
supranational organizations such as the European Coal and Steel Community, the
European Economic Community and the World Bank, which are chartered to promote
economic development.
9. FOREIGN ISSUER OBLIGATIONS - Debt securities of non U.S. issuers rated
AA or better by S&P and Aa2 or better by Moody's.
10. EURODOLLAR OBLIGATIONS - Debt securities of domestic or foreign
issuers denominated in U.S. dollars but not trading in the United States.
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Investors should be aware that the net asset values of the Fixed Income Series
may change as general levels of interest rates fluctuate. When interest rates
increase, the value of a portfolio of fixed-income securities can be expected to
decline. Conversely, when interest rates decline, the value of a portfolio of
fixed-income securities can be expected to increase.
INVESTMENTS IN THE BANKING INDUSTRY
The DFA One-Year Fixed Income, Two-Year Corporate Fixed Income and Two-Year
Global Fixed Income Series will invest more than 25% of their total respective
assets in obligations of U.S. and/or foreign banks and bank holding companies
when the yield to maturity on these investments exceeds the yield to maturity on
all other eligible portfolio investments for a period of five consecutive days
when the NYSE is open for trading. For the purpose of this policy, which is a
fundamental policy of each Series and can only be changed by a vote of the
shareholders of each Series, banks and bank holding companies are considered to
constitute a single industry, the banking industry. When investment in such
obligations exceeds 25% of the total net assets of any of these Series, such
Series will be considered to be concentrating its investments in the banking
industry. As of the date of this prospectus, The DFA One-Year Fixed Income
Series is not concentrating its investment in this industry.
The types of bank and bank holding company obligations in which The DFA One-Year
Fixed Income, Two-Year Corporate Fixed Income and Two-Year Global Fixed Income
Series may invest include: dollar-denominated certificates of deposit, bankers'
acceptances, commercial paper and other debt obligations issued in the United
States and which mature within two years of the date of settlement, provided
such obligations meet each Series' established credit rating criteria as stated
under "Description of Investments." In addition, all three Series are
authorized to invest more than 25% of their total assets in Treasury bonds,
bills and notes and obligations of federal agencies and instrumentalities.
PORTFOLIO STRATEGY
The DFA One-Year Fixed Income, Two-Year Corporate Fixed Income and Two-Year
Global Fixed Income Series will be managed with a view to capturing credit risk
premiums and term or maturity premiums. As used herein, the term "credit risk
premium" means the anticipated incremental return on investment for holding
obligations considered to have greater credit risk than direct obligations of
the U.S. Treasury, and "maturity risk premium" means the anticipated incremental
return for holding securities having maturities of longer than one month
compared to securities having a maturity of one month. The Advisor believes
that credit risk premiums are available largely through investment in high
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grade commercial paper, certificates of deposit and corporate obligations. The
holding period for assets of the Series will be chosen with a view to maximizing
anticipated monthly returns, net of trading costs.
The Fixed Income Series are expected to have high portfolio turnover rates due
to the relatively short maturities of the securities to be acquired. The rate
of portfolio turnover will depend upon market and other conditions; it will not
be a limiting factor when management believes that portfolio changes are
appropriate. It is anticipated that the annual turnover rate of The DFA
One-Year Fixed Income, Two-Year Corporate Fixed Income and Two-Year Global Fixed
Income Series, respectively, could be 0% to 200%, and Two-Year Government Series
could be 100% to 500%. While the Fixed Income Series acquire securities in
principal transactions and, therefore, do not pay brokerage commissions, the
spread between the bid and asked prices of a security may be considered to be a
"cost" of trading. Such costs ordinarily increase with trading activity.
However, as stated above, securities ordinarily will be sold when, in the
Advisor's judgment, the monthly return of the Fixed Income Series will be
increased as a result of portfolio transactions after taking into account the
cost of trading. It is anticipated that securities will be acquired in the
secondary markets for short term instruments.
THE U.S. LARGE CAP VALUE SERIES AND THE U.S. SMALL CAP VALUE SERIES
The investment objective of both The U.S. Large Cap Value Series (the "Large Cap
Value Series") and The U.S. Small Cap Value Series (the "Small Cap Value
Series") (collectively the "U.S. Value Series") is to achieve long-term capital
appreciation. The Series will invest in common stocks of U.S. companies with
shares that have a high book value in relation to their market value (a "book to
market ratio"). A company's shares will be considered to have a high book to
market ratio if the ratio equals or exceeds the ratios of any of the 30% of
companies with the highest positive book to market ratios whose shares are
listed on the NYSE and, except as described below under "Portfolio Structure",
will be considered eligible for investment. The Large Cap Value Series will
purchase common stocks of companies whose market capitalizations equal or exceed
that of the company having the median market capitalization of companies whose
shares are listed on the NYSE, and the Small Cap Value Series will purchase
common stocks of companies whose market capitalizations are smaller than such
company.
PORTFOLIO STRUCTURE. Each Series will operate as a "diversified" investment
company. Further, neither Series will invest more than 25% of its total assets
in securities of companies in a single industry. Ordinarily, at least 80% of
each Series' assets
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will be invested in a broad and diverse group of readily marketable common
stocks of U.S. companies with high book to market ratios, as described above.
The Series may invest a portion of their assets, ordinarily not more than 20%,
in high quality, highly liquid fixed income securities such as money market
instruments, including short-term repurchase agreements. The Series will
purchase securities that are listed on the principal U.S. national securities
exchanges and traded OTC.
Each of the U.S. Value Series will be structured on a market capitalization
basis, by generally basing the amount of each security purchased on the issuer's
relative market capitalization, with a view to creating in each Series a
reasonable reflection of the relative market capitalizations of its portfolio
companies. However, the Advisor may exclude the securities of a company that
otherwise meets the applicable criteria described above if the Advisor
determines in its best judgment that other conditions exist that make the
inclusion of such security inappropriate.
Deviation from strict market capitalization weighting will also occur in the
Series because they intend to purchase round lots only. Furthermore, in order
to retain sufficient liquidity, the relative amount of any security held by a
Series may be reduced, from time to time, from the level which strict adherence
to market capitalization weighting would otherwise require. A portion, but
generally not in excess of 20%, of a Series' assets may be invested in interest-
bearing obligations, as described above, thereby causing further deviation from
strict market capitalization weighting. The Series may make block purchases of
eligible securities at opportune prices even though such purchases exceed the
number of shares which, at the time of purchase, strict adherence to the policy
of market capitalization weighting would otherwise require. In addition, the
Series may acquire securities eligible for purchase or otherwise represented in
their portfolios at the time of the exchange in exchange for the issuance of
their shares. (See "In Kind Purchases" in Item 7(a).) While such purchases and
acquisitions might cause a temporary deviation from market capitalization
weighting, they would ordinarily be made in anticipation of further growth of
the assets of a Series. On not less than a semi-annual basis, for each Series
the Advisor will calculate the book to market ratio necessary to determine those
companies whose stocks are eligible for investment.
PORTFOLIO TRANSACTIONS. The Series do not intend to purchase or sell securities
based on the prospects for the economy, the securities markets or the individual
issuers whose shares are eligible for purchase. As described above under
"Portfolio Structure", investments will be made in virtually all eligible
securities on a market capitalization weighted basis. This is a passive
approach to investment management that does not entail
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taking steps to reduce risk by replacing portfolio equity securities with other
securities that appear to have the potential to provide better investment
performance.
Generally, securities will be purchased with the expectation that they will be
held for longer than one year. The Large Cap Value Series may sell portfolio
securities when the issuer's market capitalization falls substantially below
that of the issuer with the minimum market capitalization which is then eligible
for purchase by the Series, and the Small Cap Value Series may sell portfolio
securities when the issuer's market capitalization increases to a level that
substantially exceeds that of the issuer with the largest market capitalization
which is then eligible for investment by the Series. However, securities may be
sold at any time when, in the Advisor's judgment, circumstances warrant their
sale.
In addition, the Large Cap Value Series may sell portfolio securities when their
book to market ratio falls substantially below that of the security with the
lowest such ratio that is then eligible for purchase by the Series. The Small
Cap Value Series may also sell portfolio securities in the same circumstances,
however, that Series anticipates generally to retain securities of issuers with
relatively smaller market capitalizations for longer periods, despite any
decrease in the issuer's book to market ratio. The annual portfolio turnover
rates of The U.S. Large Cap Value Series and The U.S. Small Cap Value Series are
not expected to exceed 15% and 10%, respectively.
THE DFA INTERNATIONAL VALUE SERIES
The investment objective of The DFA International Value Series is to achieve
long-term capital appreciation. The Series operates as a diversified investment
company and seeks to achieve its objective by investing in the stocks of large
non-U.S. companies that have a high book to market ratio. The shares of a
company in any given country will be considered to have a high book to market
ratio if the ratio equals or exceeds the ratios of any of the 30% of companies
in that country with the highest positive book to market ratios whose shares are
listed on a major exchange, and, except as described below, will be considered
eligible for investment. The Series intends to invest in the stocks of large
companies in countries with developed markets. Initially, the Series will
invest in the stocks of large companies in Japan, the United Kingdom, Germany,
France, Switzerland, Italy, Belgium, Spain, the Netherlands, Hong Kong,
Singapore, Australia and Sweden. As the Series' asset growth permits, it may
invest in the stocks of large companies in other developed markets.
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Under normal market conditions, at least 65% of the Series' assets will be
invested in companies organized or having a majority of their assets in or
deriving a majority of their operating income in at least three non-U.S.
countries and no more than 40% of the Series' assets will be invested in such
companies in any one country. The Series reserves the right to invest in index
futures contracts to commit funds awaiting investment or to maintain liquidity.
The Series will not purchase futures contracts if as a result more than 5% of
its total assets would then consist of initial and variation margin deposits on
such contracts. Such investments entail certain risks. (See Item 4(c).)
The Series intends to invest in companies having at least $500 million of market
capitalization, and the Series will be approximately market capitalization
weighted. In determining market capitalization weights, the Advisor, using its
best judgment, will seek to eliminate the effect of cross holdings on the
individual country weights. As a result, the weighting of certain countries in
the Series may vary from their weighting in
international indices such as those published by The Financial Times, Morgan
Stanley Capital International or Salomon/Russell. The Advisor, however, will
not attempt to account for cross holding within the same country. The Advisor
may exclude the stock of a company that otherwise meets the applicable criteria
if the Advisor determines in its best judgment that other conditions exist that
make the purchase of such stock for the Series inappropriate.
Deviation from market capitalization weighting will occur because the Series
intends to purchase round lots only. Furthermore, in order to retain sufficient
liquidity, the relative amount of any security held by the Series may be reduced
from time to time from the level which adherence to market capitalization
weighting would otherwise require. A portion, but generally not in excess of
20%, of the Series' assets may be invested in interest-bearing obligations, such
as money-market instruments, thereby causing further deviation from market
capitalization weighting. Such investments would be made on a temporary basis
pending investment in equity securities pursuant to the Series' investment
objective.
The Series may make block purchases of eligible securities at opportune prices
even though such purchases exceed the number of shares which, at the time of
purchase, adherence to the policy of market capitalization weighting would
otherwise require. In addition, the Series may acquire securities eligible for
purchase or otherwise represented in its portfolio at the time of the exchange
in exchange for the issuance of its shares. (See "In Kind Purchases" in Item
7(a).) While such transactions might cause a temporary deviation from market
capitalization weighting,
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they would ordinarily be made in anticipation of further growth of the assets of
the Series.
Changes in the composition and relative ranking (in terms of market
capitalization and book to market ratio) of the stocks which are eligible for
purchase by the Series take place with every trade when the securities markets
are open for trading due, primarily, to price fluctuations of such securities.
On a periodic basis, the Advisor will prepare a list of eligible large companies
with high book to market ratios whose stock are eligible for investment; such
list will be revised not less than semi-annually. Only common stocks whose
market capitalizations are not less than such minimum will be purchased by the
Series. Additional investments will not be made in securities which have
depreciated in value to such an extent that they are not then considered by the
Advisor to be large companies. This may result in further deviation from market
capitalization weighting and such deviation could be substantial if a
significant amount of the Series' holdings decrease in value sufficiently to be
excluded from the then current market capitalization requirement for eligible
securities, but not by a sufficient amount to warrant their sale.
It is management's belief that the stocks of large companies with high book to
market ratios offer, over a long term, a prudent opportunity for capital
appreciation, but, at the same time, selecting a limited number of such issues
for inclusion in the Series involves greater risk than including a large number
of them. The Advisor does not anticipate that a significant number of
securities which meet the market capitalization criteria will be selectively
excluded from the Series.
The Series does not seek current income as an investment objective, and
investments will not be based upon an issuer's dividend payment policy or
record. However, many of the companies whose securities will be included in the
Series do pay dividends. It is anticipated, therefore, that the Series will
receive dividend income. The Series may lend securities to qualified brokers,
dealers, banks and other financial institutions for the purpose of realizing
additional income. (See "Securities Loans" below.)
Securities which have depreciated in value since their acquisition will not be
sold by the Series solely because prospects for the issuer are not considered
attractive, or due to an expected or realized decline in securities prices in
general. Securities may be disposed of, however, at any time when, in the
Advisor's judgment, circumstances warrant their sale, such as tender offers,
mergers and similar transactions, or bids made for block purchases at opportune
prices. Generally, securities will not be sold to realize short-term profits,
but when circumstances warrant, they may be sold without regard to the length of
time
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held. Generally, securities will be purchased with the expectation that they
will be held for longer than one year, and will be held until such time as they
are no longer considered an appropriate holding in light of the policy of
maintaining a portfolio of companies with large market capitalizations and high
book to market ratios.
In addition to the policies discussed in response to this Item 4(a), investment
limitations have been adopted by each Series and are noted in response to Item
13(b) of Part B.
THE EMERGING MARKETS SERIES AND THE EMERGING MARKETS SMALL CAP SERIES
The investment objective of both The Emerging Markets Series and The Emerging
Markets Small Cap Series is to achieve long-term capital appreciation. Each
Series operates as a diversified investment company and seeks to achieve its
investment objective by investing in emerging markets designated by the Board of
Trustees in consultation with the Advisor ("Approved Markets"). Each Series
invests its assets primarily in Approved Market equity securities listed on bona
fide securities exchanges or actively traded on OTC markets. These exchanges or
OTC markets may be either within or outside the issuer's domicile country, and
the securities may be listed or traded in the form of International Depository
Receipts ("IDRs") or American Depository Receipts ("ADRs").
SERIES' CHARACTERISTICS AND POLICIES. The Emerging Markets Series will seek a
broad market coverage of larger companies within each Approved Market. This
Series will attempt to own shares of companies whose aggregate overall share of
the Approved Market's total public market capitalization is at least in the
upper 40% of such capitalization, and can be as large as 75%. The Emerging
Markets Series may limit the market coverage in the smaller emerging markets in
order to limit purchases of small market capitalization companies.
The Emerging Markets Small Cap Series will seek a broad market coverage of
smaller companies within each Approved Market. This Series will attempt to own
shares of companies whose aggregate overall share of the Approved Market's total
public market capitalization falls within the lowest 20-50% of such
capitalization. In general, the companies in which this Series will invest have
a market capitalization of at least $10 million at the time of investment. On a
periodic basis, the Advisor will review the holdings of the Emerging Markets
Small Cap Series and determine which, at the time of such review, are no longer
considered small emerging market companies. The present policy is to consider
portfolio securities for sale when they have
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appreciated sufficiently to rank, on a market capitalization basis, 100 percent
larger than the largest market capitalization that is eligible for purchase as
set by the Advisor for that Approved Market.
Each Series may not invest in all such companies or Approved Markets described
above or achieve approximate market weights, for reasons which include
constraints imposed within Approved Markets (E.G., restrictions on purchases by
foreigners), and each Series' policy not to invest more than 25% of its assets
in any one industry.
Under normal market conditions, each Series will invest at least 65% of its
assets in Approved Market securities. Approved Market securities include (a)
securities of companies organized in a country in an Approved Market or for
which the principal trading market is in an Approved Market, (b) securities
issued or guaranteed by the government of an Approved Market country, its
agencies or instrumentalities, or the central bank of such country, (c)
securities denominated in an Approved Market currency issued by companies to
finance operations in Approved Markets, (d) securities of companies that derive
at least 50% of their revenues primarily from either goods or services produced
in Approved Markets or sales made in Approved Markets and (e) Approved Markets
equity securities in the form of depositary shares. Securities of Approved
Markets may include securities of companies that have characteristics and
business relationships common to companies in other countries. As a result, the
value of the securities of such companies may reflect economic and market forces
in such other countries as well as in the Approved Markets. The Advisor,
however, will select only those companies which, in its view, have sufficiently
strong exposure to economic and market forces in Approved Markets such that
their value will tend to reflect developments in Approved Markets to a greater
extent than developments in other regions. For example, the Advisor may invest
in companies organized and located in the United States or other countries
outside of Approved Markets, including companies having their entire production
facilities outside of Approved Markets, when such companies meet the definition
of Approved Markets securities so long as the Advisor believes at the time of
investment that the value of the company's securities will reflect principally
conditions in Approved Markets.
The Advisor defines the term "emerging market" to mean a country which is
considered to be an emerging market by the International Finance Corporation.
Approved emerging markets may not include all such emerging markets. In
determining whether to approve markets for investment, the Board of Trustees
will take into account, among other things, market liquidity, investor
information, government regulation, including fiscal and foreign
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exchange repatriation rules and the availability of other access to these
markets by the investors of each of the Series.
The following countries are currently designated as Approved Markets:
Argentina, Brazil, Chile, Indonesia, Malaysia, Mexico, Philippines, Portugal,
Thailand, Turkey and Israel. Countries that may be approved in the future
include but are not limited to Republic of China (Taiwan), which is effectively
closed to foreign investors at present, and Colombia, Greece, India, Jordan,
Nigeria, Pakistan, Venezuela and Zimbabwe.
Each Series may invest up to 35% of its assets in securities of issuers that are
not Approved Markets securities, but whose issuers the Advisor believes derive a
substantial proportion, but less than 50%, of their total revenues from either
goods and services produced in, or sales made in, Approved Markets.
Pending the investment of new capital in Approved Market equity securities, each
Series will typically invest in money market instruments or other highly liquid
debt instruments denominated in U.S. dollars (including, without limitation,
repurchase agreements). In addition, each Series may, for liquidity, or for
temporary defensive purposes during periods in which market or economic or
political conditions warrant, purchase highly liquid debt instruments or hold
freely convertible currencies, although neither Series expects the aggregate of
all such amounts to exceed 10% of its net assets under normal circumstances.
Both Series also may invest in shares of other investment companies that invest
in one or more Approved Markets, although they intend to do so only where access
to those markets is otherwise significantly limited. The Series may also invest
in money market mutual funds for temporary cash management purposes. The
Investment Company Act of 1940 limits investment by a Series in shares of other
investment companies as follows: (1) no more than 10% of the value of a Series'
total assets may be invested in shares of other investment companies; (2) a
Series may not own securities issued by an investment company having an
aggregate value in excess of 5% of the value of the total assets of the Series;
and (3) a Series may not own more than 3% of the total outstanding voting stock
of an investment company. If either Series invests in another investment
company, the Series' shareholders will bear not only their proportionate share
of expenses of the Series (including operating expenses and the fees of the
Advisor), but also will bear indirectly similar expenses of the underlying
investment company. In some Approved Markets, it will be necessary or advisable
for a Series to establish a wholly-owned subsidiary or a trust for the purpose
of investing in the local markets. Each Series also may invest
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up to 5% of its assets in convertible debentures issued by companies organized
in Approved Markets.
PORTFOLIO STRUCTURE. Each Series' policy of seeking broad market
diversification means that the Advisor will not utilize "fundamental" securities
research techniques in identifying securities selections. The decision to
include or exclude the shares of an issuer will be made primarily on the basis
of such issuer's relative market capitalization determined by reference to other
companies located in the same country. Company size is measured in terms of
reference to other companies located in the same country and in terms of local
currencies in order to eliminate the effect of variations in currency exchange
rates. Even though a company's stock may meet the applicable market
capitalization criterion, it may not be included in a Series for one or more of
a number of reasons. For example, in the Advisor's judgment, the issuer may be
considered in extreme financial difficulty, a material portion of its securities
may be closely held and not likely available to support market liquidity, or the
issuer may be a "passive foreign investment company" (as defined in the Internal
Revenue Code of 1986, as amended). To this extent, there will be the exercise
of discretion and consideration by the Advisor which would not be present in the
management of a portfolio seeking to represent an established index of broadly
traded domestic securities (such as the S&P 500 Index). The Advisor will also
exercise discretion in determining the allocation of capital as between Approved
Markets.
It is management's belief that equity investments offer, over a long term, a
prudent opportunity for capital appreciation, but, at the same time, selecting a
limited number of such issues for inclusion in a Series involves greater risk
than including a large number of them.
Neither Series seeks current income as an investment objective, and investments
will not be based upon an issuer's dividend payment policy or record. However,
many of the
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companies whose securities will be included in a Series do pay dividends. It is
anticipated, therefore, that both Series will receive dividend income.
Generally, securities will be purchased with the expectation that they will be
held for longer than one year. However, securities may be disposed of at any
time when, in the Advisor's judgment, circumstances warrant their sale.
Generally, securities will not be sold to realize short-term profits, but when
circumstances warrant, they may be sold without regard to the length of time
held. The portfolio turnover rate of the Emerging Markets Small Cap Series
ordinarily is anticipated to be low, and is not expected to exceed 20% per year.
For the purpose of converting U.S. dollars to another currency, or vice versa,
or converting one foreign currency to another foreign currency, each Series may
enter into forward foreign exchange contracts. In addition, to hedge against
changes in the relative value of foreign currencies, each Series may purchase
foreign currency futures contracts. A Series will only enter into such a
futures contract if it is expected that the Series will be able readily to close
out such contract. There can, however, be no assurance that it will be able in
any particular case to do so, in which case the Series may suffer a loss.
SECURITIES LOANS
Each Series of the Trust may lend securities to qualified brokers, dealers,
banks and other financial institutions for the purpose of earning additional
income. While a Series may earn additional income from lending securities, such
activity is incidental to the investment objective of a Series. The value of
securities loaned may not exceed 331/3% of the value of a Series' total assets.
In connection with such loans, a Series will receive collateral consisting of
cash or U.S. Government securities, which will be maintained at all times in an
amount equal to at least 100% of the current market value of the loaned
securities. In addition, the Series will be able to terminate the loan at any
time and will receive reasonable interest on the loan, as well as amounts equal
to any dividends, interest or other distributions on the loaned securities. In
the event of the bankruptcy of the borrower, the Trust could experience delay in
recovering the loaned securities. Management believes that this risk can be
controlled through careful monitoring procedures.
ITEM 4(b) OTHER INVESTMENT PRACTICES
The U.S. 6-10 Small Company Series may invest in securities of foreign issuers
that are traded in the U.S. securities markets,
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but such investments may not exceed 5% of the gross assets of the Series.
The U.S. Large Company Series may invest generally not more than 5% of its net
assets in the same types of short-term fixed income obligations as may be
acquired by The DFA One-Year Fixed Income Series, in order to maintain liquidity
or to invest temporarily uncommitted cash balances. (See "The DFA One-Year
Fixed Income Series" in Item 4(a)(ii).)
The U.S. Large Company Series, the U.S. Value Series and The DFA International
Value Series may acquire stock index futures contracts and options thereon in
order to commit funds awaiting investment in stocks or maintain cash liquidity.
However, each Series will not purchase stock index futures contracts or options
if as a result more than 5% of its total assets would then consist of initial
and variation margin deposits on such contracts or options. Such investments
entail certain risks. (See "Risk Factors - All Series" in Item 4(c).)
ITEM 4(c) RISK FACTORS - ALL SERIES
SMALL COMPANY SECURITIES
Typically, securities of small companies are less liquid than securities of
large companies. Recognizing this factor, management will endeavor to effect
securities transactions in a manner to avoid causing significant price
fluctuations in the market for these securities.
FOREIGN SECURITIES
The Japanese, United Kingdom, Continental, Pacific Rim, Enhanced U.S. Large
Company, DFA One-Year Fixed Income, Two-Year Corporate Fixed Income, Two-Year
Global Fixed Income and DFA International Value Series invest in foreign
issuers. Such investments involve risks that are not associated with
investments in U.S. public companies. Such risks may include legal, political
and or diplomatic actions of foreign governments, such as imposition of
withholding taxes on interest and dividend income payable on the securities
held, possible seizure or nationalization of foreign deposits, establishment of
exchange controls or the adoption of other foreign governmental restrictions
which might adversely affect the value of the assets held by the Series.
Further, foreign issuers are not generally subject to uniform accounting,
auditing and financial reporting standards comparable to those of U.S. public
companies and there may be less publicly available information about such
companies than comparable U.S. companies. The Enhanced U.S. Large Company
Series, DFA One-Year Fixed Income, Two-Year Corporate Fixed Income and Two-Year
Global Fixed Income Series also may invest in obligations of supranational
organizations. The value of the
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obligations of these organizations may be adversely affected if one or more of
their supporting governments discontinue their support. Also, there can be no
assurance that any of the Series will achieve its investment objective.
INVESTING IN EMERGING MARKETS
The investments of The Emerging Markets Series and The Emerging Markets Small
Cap Series involve risks that are in addition to the usual risks of investing in
developed foreign markets. A number of emerging securities markets restrict, to
varying degrees, foreign investment in stocks. Repatriation of investment
income, capital and the proceeds of sales by foreign investors may require
governmental registration and/or approval in some emerging countries. In some
jurisdictions, such restrictions and the imposition of taxes are intended to
discourage shorter- rather than longer-term holdings. While The Emerging
Markets Series and The Emerging Markets Small Cap Series will invest only in
markets where these restrictions are considered acceptable to the Advisor, new
or additional repatriation restrictions might be imposed subsequent to a Series'
investment. If such restrictions were imposed subsequent to investment in the
securities of a particular country, a Series might, among other things,
discontinue the purchasing of securities in that country. Such restrictions
will be considered in relation to the Series' liquidity needs and other factors
and may make it particularly difficult to establish the fair market value of
particular securities from time to time. The valuation of securities held by a
Series is the responsibility of the Board of Trustees, acting in good faith and
with advice from the Advisor. (See Item 7(b).) Further, some attractive equity
securities may not be available to the Series because foreign shareholders hold
the maximum amount permissible under current laws.
Relative to the U.S. and to larger non-U.S. markets, many of the emerging
securities markets in which The Emerging Markets Series and The Emerging Markets
Small Cap Series may invest are relatively small, have low trading volumes,
suffer periods of illiquidity and are characterized by significant price
volatility. Such factors may be even more pronounced in jurisdictions where
securities ownership is divided into separate classes for domestic and non-
domestic owners.
In addition, many emerging markets, including most Latin American countries,
have experienced substantial, and, in some periods, extremely high, rates of
inflation for many years. Inflation and rapid fluctuations in inflation rates
have had and may continue to have very negative effects on the economies and
securities markets of certain countries. In an attempt to control inflation,
wage and price controls have been imposed at times in certain countries.
Certain emerging markets have recently
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transitioned, or are in the process of transitioning, from centrally controlled
to market-based economies. There can be no assurance that such transitions
will be successful.
Brokerage commissions, custodial services and other costs relating to investment
in foreign markets generally are more expensive than in the United States; this
is particularly true with respect to emerging markets. Such markets have
different settlement and clearance procedures. In certain markets there have
been times when settlements do not keep pace with the volume of securities
transactions, making it difficult to conduct such transactions. The inability
of a Series to make intended securities purchases due to settlement problems
could cause the Series to miss investment opportunities. Inability to dispose
of a portfolio security caused by settlement problems could result either in
losses to a Series due to subsequent declines in value of the portfolio security
or, if a Series has entered into a contract to sell the security, could result
in possible liability to the purchaser.
The risk also exists that an emergency situation may arise in one or more
emerging markets as a result of which trading of securities may cease or may be
substantially curtailed and prices for a Series' portfolio securities in such
markets may not be readily available. The Series' portfolio securities in the
affected markets will be valued at fair value determined in good faith by or
under the direction of the Board of Trustees.
Government involvement in the private sector varies in degrees among the
emerging securities markets contemplated for investment by the Series. Such
involvement may, in some cases, include government ownership of companies in
certain commercial business sectors, wage and price controls or imposition of
trade barriers and other protectionist measures. With respect to any developing
country, there is no guarantee that some future economic or political crisis
will not lead to price controls, forced mergers of companies, expropriation, the
creation of government monopolies, or other measures which could be detrimental
to the investments of a Series.
Taxation of dividends and capital gains received by non-residents varies among
countries with emerging markets and, in some cases, is high in relation to
comparable U.S. rates. Particular tax structures may have the intended or
incidental effect of encouraging long holding periods for particular securities
and/or the reinvestment of earnings and sales proceeds in the same jurisdiction.
In addition, emerging market jurisdictions typically have less well-defined tax
laws and procedures than is the case in the United States, and such laws may
permit
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retroactive taxation so that The Emerging Markets Series and The Emerging
Markets Small Cap Series could in the future become subject to local tax
liability that it had not reasonably anticipated in conducting its investment
activities or valuing its assets.
FOREIGN CURRENCIES AND RELATED TRANSACTIONS
Investments of the Japanese, United Kingdom, Continental and Pacific Rim Series,
The DFA International Value Series, The Emerging Markets Series, The Emerging
Markets Small Cap Series, many of the investments of The DFA Two-Year Global
Fixed Income Series and, to a lesser extent, the investments of The Enhanced
U.S. Large Company Series, will be denominated in foreign currencies. Changes
in the relative values of foreign currencies and the U.S. dollar, therefore,
will affect the value of investments of the Series. The Series may purchase
foreign currency futures contracts and options in order to hedge against changes
in the level of foreign currency exchange rates, provided not more than 5% of
the Series' assets are then invested as initial or variation margin deposits on
such contracts or options. Such contracts involve an agreement to purchase or
sell a specific currency at a future date at a price set in the contract and
enable the Series to protect against losses resulting from adverse changes in
the relationship between the U.S. dollar and foreign currencies occurring
between the trade and settlement dates of Series securities transactions, but
they also tend to limit the potential gains that might result from a positive
change in such currency relationships. Gains and losses on investments in
futures and options thereon depend on the direction of securities prices,
interest rates and other economic factors.
BORROWING
Each Series, except the Japanese Series and The DFA One-Year Fixed Income
Series, has reserved the right to borrow amounts not exceeding 33% of its net
assets for the purposes of making redemption payments. When advantageous
opportunities to do so exist, the Series may also purchase securities when
borrowings exceed 5% of the value of the Series' net assets. Such purchases can
be considered to be "leveraging," and in such circumstances, the net asset value
of the Series may increase or decrease at a greater rate than would be the case
if the Series had not leveraged. The interest payable on the amount borrowed
would increase the Series' expenses and if the appreciation and income produced
by the investments purchased when the Series has borrowed are less than the cost
of borrowing, the investment performance of the Series will be reduced as a
result of leveraging.
PORTFOLIO STRATEGIES
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The method employed by the Advisor to manage each Series, except The U.S. Large
Company Series, The Enhanced U.S. Large Company Series and the Fixed Income
Series, will differ from the process employed by many other investment advisors
in that the Advisor will rely on fundamental analysis of the investment merits
of securities to a limited extent to eliminate potential portfolio acquisitions
rather than rely on this technique to select securities. Further, because
securities generally will be held long-term and will not be eliminated based on
short-term price fluctuations, the Advisor generally will not act upon general
market movements or short-term price fluctuations of securities to as great an
extent as many other investment advisors. The U.S. Large Company Series will
operate as an index fund and, therefore, represents a passive method of
investing in all stocks that comprise the S&P 500 Index which does not entail
selection of securities based on the individual investment merits of their
issuers. The investment performance of The U.S. Large Company Series is
expected to approximate the investment performance of the S&P 500 Index, which
tends to be cyclical in nature, reflecting periods when stock prices generally
rise or fall.
FUTURES CONTRACTS AND OPTIONS ON FUTURES
The U.S. Large Company Series, The Enhanced U.S. Large Company Series, the U.S.
Value Series, The DFA International Value Series, The Emerging Markets Series
and The Emerging Markets Small Cap Series may invest in index futures contracts
and options on index futures, provided that, in accordance with current
regulations, not more than 5% of each Series' total assets are then invested as
initial margin deposits on such contracts or options. In addition, to the
extent that such Series invest in futures contracts and options thereon for
other than bona fide hedging purposes, no Series will enter into such
transactions if, immediately thereafter, the sum of the amount of margin
deposits and premiums paid for open futures options would exceed 5% of the
Series' total assets, after taking into account unrealized profits and
unrealized losses on such contracts it has entered into; provided, however,
that, in the case of an option that is in-the-money at the time of purchase, the
in-the-money amount may be excluded in calculating the 5%.
These investments entail the risk that an imperfect correlation may exist
between changes in the market value of the stocks owned by the Series and the
prices of such futures contracts and options, and, at times, the market for such
contracts and options might lack liquidity, thereby inhibiting a Series' ability
to close a position in such investments. Gains or losses on investments in
options and futures depend on the direction of securities prices, interest rates
and other economic factors, and the loss from investing in futures transactions
is potentially unlimited. Certain restrictions imposed by the Internal Revenue
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Code may limit the ability of a Series to invest in futures contracts and
options on futures contracts.
OPTIONS ON STOCK INDICES
The Enhanced U.S. Large Company Series may purchase put and call options and
write put and call options on stock indices and stock index futures listed on
national securities exchanges or traded in the over-the-counter market. The
Enhanced U.S. Large Company Series may use these techniques to hedge against
changes in securities prices or as part of its overall investment strategy. An
option on an index is a contract that gives the holder of the option, in return
for a premium, the right to buy from (in the case of a call) or sell to (in the
case of a put) the writer of the option the cash value of the index at a
specified exercise price at any time during the term of the option. Upon
exercise, the writer of an option on an index is obligated to pay the difference
between the cash value of the index and the exercise price multiplied by the
specified multiplier for the index option. (An index is designed to reflect
specified facets of a particular financial or securities market, a specific
group of financial instruments or securities, or certain economic indicators.)
A stock index fluctuates with changes in the market values of the stocks
included in the index.
With respect to the writing of options, the writer has no control over the time
when it may be required to fulfill its obligation. Prior to exercise or
expiration, an option may be closed out by an offsetting purchase or sale of an
option on the same series. There can be no assurance, however, that a closing
purchase or sale transaction can be effected when The Enhanced U.S. Large
Company Series desires.
The Enhanced U.S. Large Company Series may write covered straddles consisting of
a combination of a call and a put written on the same index. A straddle will be
covered when sufficient assets are deposited to meet The Enhanced U.S. Large
Company Series' immediate obligations. The Series may use the same liquid
assets to cover both the call and put options where the exercise price of the
call and the put are the same or the exercise price of the call is higher than
that of the put. In such cases, the Series will also segregate liquid assets
equivalent to the amount, if any, by which the put is "in the money."
The effectiveness of purchasing stock index options will depend upon the extent
to which price movements in The Enhanced U.S. Large Company Series' portfolio
correlate with price movements of the stock index selected. Because the value
of an index option depends upon movements in the level of the index rather than
the price of a particular stock, whether the Series will realize a gain or loss
from the purchase of options on an index depends
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upon movements in the level of stock prices in the stock market generally or, in
the case of certain indices, in an industry or market segment, rather than
movements in the price of a particular stock. If The Enhanced U.S. Large
Company Series takes positions in options instruments contrary to prevailing
market trends, the Series could be exposed to the risk of a loss. Certain
restrictions imposed on The Enhanced U.S. Large Company Series by the Internal
Revenue Code may limit the ability of such Series to invest in options.
SWAPS
The Enhanced U.S. Large Company Series may enter into equity index swap
agreements for purposes of attempting to obtain a particular desired return at a
lower cost to the Series than if the Series had invested directly in an
instrument that yielded that desired return. Swap agreements are two-party
contracts entered into primarily by institutional investors for periods ranging
from a few weeks to more than one year. In a standard "swap" transaction, two
parties agree to exchange the returns (or differentials in rates of return)
earned or realized on particular predetermined investments or instruments. The
gross returns to be exchanged or "swapped" between the parties are generally
calculated with respect to a "notional amount," i.e., the return on or increase
in value of a particular dollar amount invested a group of securities
representing a particular index.
The "notional amount" of the swap agreement is only a fictive basis on which to
calculate the obligations which the parties to a swap agreement have agreed to
exchange. Most swap agreements entered into by The Enhanced U.S. Large Company
Series would calculate the obligations of the parties to the agreement on a "net
basis." Consequently, the Series' current obligations (or rights) under a swap
agreement will generally be equal only to the net amount to be paid or received
under the agreement based on the relative values of the positions held by each
party to the agreement (the "net amount"). The Enhanced U.S. Large Company
Series' current obligations under a swap agreement will be accrued daily (offset
against amounts owed to the Series) and any accrued but unpaid net amounts owed
to a swap counterparty will be covered by the maintenance of a segregated
account consisting of liquid assets to avoid any potential leveraging of the
Series' portfolio. The Enhanced U.S. Large Company Series will not enter into a
swap agreement with any single party if the net amount owed or to be received
under existing contracts with that party would exceed 5% of the Series' assets.
Because they are two-party contracts and because they may have terms of greater
than seven days, swap agreements may be considered to be illiquid, and,
therefore, swap agreements entered into by The Enhanced U.S. Large Company
Series and other
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illiquid securities will be limited to 15% of the net assets of the Series.
Moreover, The Enhanced U.S. Large Company Series bears the risk of loss of the
amount expected to be received under a swap agreement in the event of the
default or bankruptcy of a swap agreement counterparty. The Advisor will cause
The Enhanced U.S. Large Company Series to enter into swap agreements only with
counterparties that the Investment Committee of the Advisor has approved.
Certain restrictions imposed on the Enhanced U.S. Large Company Series by the
Internal Revenue Code may limit the Series' ability to use swap agreements. The
swap market is a relatively new market and is largely unregulated. It is
possible that developments in the swaps market, including potential government
regulation, could adversely affect The Enhanced U.S. Large Company Series'
ability to terminate existing swap agreements or to realize amounts to be
received under such agreements.
BANKING INDUSTRY CONCENTRATIONS
Concentrating in obligations of the banking industry may involve additional risk
by foregoing the safety of investing in a variety of industries. Changes in the
market's perception of the riskiness of banks relative to non-banks could cause
more fluctuations in the net asset value of The DFA One-Year Fixed Income, Two-
Year Corporate Fixed Income and Two-Year Global Fixed Income Series than might
occur in less concentrated portfolios.
REPURCHASE AGREEMENTS
In addition, all of the Series may invest in repurchase agreements. In the
event of the bankruptcy of the other party to a repurchase agreement, the Trust
could experience delay in recovering the securities underlying such agreements.
Management believes that this risk can be controlled through stringent security
selection criteria and careful monitoring procedures.
ITEM 5. MANAGEMENT OF THE TRUST
(a) The Trust has a Board of Trustees, which is responsible for establishing
Trust policies and for overseeing the management of the Trust.
(b)(i) Dimensional Fund Advisors Inc., 1299 Ocean Avenue, 11th Floor, Santa
Monica, California 90401, serves as investment advisor to each of the Series.
The Advisor was organized in May 1981 and is engaged in the business of
providing investment management services to institutional investors. Assets
under management total approximately $17.5 billion. David G. Booth and Rex A.
Sinquefield, directors and officers of the Advisor and trustees and officers of
the Trust, and shareholders of Advisor's
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outstanding voting stock, may be deemed controlling persons of the Advisor.
(b)(ii) Pursuant to an investment management agreement with the Trust with
respect to each Series, the Advisor manages the investment and reinvestment of
their assets. The Advisor also provides the Trust with records concerning the
Advisor's activities which the Trust is required to maintain and renders regular
reports to the Trust's officers and the Board of Trustees. The Advisor also
provides all of the Series with a trading department and selects brokers and
dealers to effect securities transactions.
(b)(iii) For the fiscal year ended November 30, 1995, (i) the Advisor received
a fee for its services which, on an annual basis, equaled the following
percentage of the average net assets of each Series; and (ii) the total expenses
of each Series were the following percentages of respective average net assets:
Series Management Fee Total Expenses
------ -------------- --------------
U.S. 6-10 Small Company 0.03% 0.15%
U.S. Large Company 0.025% 0.025%
U.S. Small Cap Value 0.20% 0.32%
U.S. Large Cap Value 0.10% 0.21%
DFA One-Year Fixed Income 0.05% 0.10%
DFA International Value 0.20% 0.42%
Emerging Markets Series 0.10% 0.87%
The management fees applicable to the following Series, each of which had not
commenced operations as of November 30, 1995, are equal to the following
percentages of the average net assets of each Series on an annual basis.
Series Management Fee
------ --------------
Enhanced U.S. Large Company 0.05%
DFA Two-Year Corporate Fixed Income 0.15%
DFA Two-Year Global Fixed Income 0.05%
DFA Two-Year Government 0.15%
Japanese Small Company 0.10%
United Kingdom Small Company 0.10%
Pacific Rim Small Company 0.10%
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Continental Small Company 0.10%
Emerging Markets Small Cap 0.20%
With respect to The DFA International Value Series, from December 1, 1993
through August 8, 1996, the Advisor waived its fee under the investment
management agreement to the extent necessary to keep the cumulative annual
expenses of the Series to not more than 0.45% of average net assets of the
Series on an annualized basis. For the fiscal year ended November 30, 1995, the
Advisor was not required to waive any portion of its fee pursuant to such
agreement.
Pursuant to the terms of the investment management agreement relating to The
U.S. Large Company Series, for the fiscal year ended November 30, 1995, the
Advisor agreed to bear all of the ordinary operating expenses of the Series,
except the investment advisory fee; such expenses were not subject to
reimbursement. Absent this arrangement, the annualized ratio of expenses to
average net assets for The U.S. Large Company Series for the fiscal year ended
November 30, 1995 would have been 0.18%. Effective December 1, 1995, pursuant
to the terms of the current investment management agreement between the Trust on
behalf of The U.S. Large Company Series and the Advisor, the Series is obligated
to bear all of its operating expenses, including its investment management fee.
INVESTMENT SERVICES - UNITED KINGDOM AND CONTINENTAL SMALL COMPANY SERIES
Pursuant to Sub-Advisory Agreements with the Advisor, Dimensional Fund
Advisors Ltd. ("DFAL"), 14 Berkeley Street, London, W1X 5AD, England, a company
that is organized under the laws of England, has the authority and
responsibility to select brokers or dealers to execute securities transactions
for the United Kingdom and Continental Series. DFAL's duties include the
maintenance of a trading desk for the Series and the determination of the best
and most efficient means of executing securities transactions. On at least a
semi-annual basis the Advisor reviews the holdings of the United Kingdom and
Continental Series and reviews the trading process and the execution of
securities transactions. The Advisor is responsible for determining those
securities which are eligible for purchase and sale by these Series and may
delegate this task, subject to its own review, to DFAL. DFAL maintains and
furnishes to the Advisor information and reports on United Kingdom and European
small companies, including its recommendations of securities to be added to the
securities that are eligible for purchase by the Series. The Advisor pays DFAL
quarterly fees of 12,500 pounds sterling for services to each Series. DFAL is a
member of the
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Investment Management Regulatory Organization Limited ("IMRO"), a self
regulatory organization for investment managers operating under the laws of
England.
INVESTMENT SERVICES - JAPANESE AND PACIFIC RIM SMALL COMPANY SERIES
Pursuant to Sub-Advisory Agreements with the Advisor, DFA Australia Pty
Limited ("DFA Australia"), Suite 4403 Gateway, 1 MacQuarie Place, Sydney, New
South Wales 2000, Australia, the successor to Dimensional Fund Advisors Asia
Inc., has the authority and responsibility to select brokers and dealers to
execute securities transactions for the Japanese and Pacific Rim Series. DFA
Australia's duties include the maintenance of a trading desk for each Series and
the determination of the best and most efficient means of executing securities
transactions. On at least a semi-annual basis, the Advisor reviews the holdings
of the Japanese and Pacific Rim Series and reviews the trading process and the
execution of securities transactions. The Advisor is responsible for
determining those securities which are eligible for purchase and sale by these
Series and may delegate this task, subject to its own review, to DFA Australia.
DFA Australia maintains and furnishes to the Advisor information and reports on
Japanese and Pacific Rim small companies, including its recommendations of
securities to be added to the securities that are eligible for purchase by each
Series. The Advisor pays DFA Australia quarterly fees of 25,000 Hong Kong
dollars for services to each Series.
(c) Investment decisions for all Series are made by the Investment Committee of
the Advisor which meets on a regular basis and also as needed to consider
investment issues. The Investment Committee is composed of certain officers and
directors of the Advisor who are elected annually.
(d) AND (e) PFPC Inc. ("PFPC"), 400 Bellevue Parkway, Wilmington, Delaware
19809, serves as the administrative services, dividend disbursing and transfer
agent for all Trust Series. The services provided by PFPC are subject to
supervision by the executive officers and the Board of Trustees of the Trust,
and include day-to-day keeping and maintenance of certain records, calculation
of the offering price of the shares, preparation of reports, liaison with its
custodians, and transfer and dividend disbursing agency services. For its
services, each Series pays PFPC annual fees which are set forth in the following
table:
U.S. 6-10 SMALL COMPANY SERIES
U.S. SMALL CAP VALUE SERIES
U.S. LARGE CAP VALUE SERIES
ENHANCED U.S. LARGE COMPANY SERIES
CHARGES FOR EACH SERIES:
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.1025% of the first $300 million of net assets
.0769% of the next $300 million of net assets
.0513% of the next $250 million of net assets
.0205% of net assets over $850 million
PFPC charges a minimum fee of $58,800 per year to each of the Large Cap Value
and Small Cap Value Series. PFPC charges the Enhanced U.S. Large Company Series
a minimum fee of $75,000 per year which is to be phased in over the first year
of the Series' operation. PFPC has agreed that it may from time to time limit
the fee rates and the minimum fees for these Series.
DFA TWO-YEAR GLOBAL FIXED INCOME SERIES
.1230% of the first $150 million of net assets
.0820% of the next $150 million of net assets
.0615% of the next $300 million of net assets
.0410% of the next $250 million of net assets
.0205% of net assets over $850 million
The Series is subject to a minimum fee of $75,000 per year which is to be phased
in over the first year of the Series' operation. PFPC has agreed to limit the
minimum fee for the Series from time to time.
JAPANESE SMALL COMPANY SERIES
UNITED KINGDOM SMALL COMPANY SERIES
PACIFIC RIM SMALL COMPANY SERIES
CONTINENTAL SMALL COMPANY SERIES
DFA INTERNATIONAL VALUE SERIES
EMERGING MARKETS SERIES
EMERGING MARKETS SMALL CAP SERIES
CHARGES FOR EACH SERIES:
.123% of the first $300 million of net assets
.0615% of the next $300 million of net assets
.0410% of the next $250 million of net assets
.0205% of net assets over $850 million
The DFA International Value, Emerging Markets and Emerging Markets Small Cap
Series are each subject to minimum fees of $75,000 per year. The Pacific Rim
Small Company Series is subject to a minimum fee of $100,000 per year. PFPC has
agreed to limit the minimum fee for these Series from time to time.
DFA ONE-YEAR FIXED INCOME SERIES
DFA TWO-YEAR CORPORATE FIXED INCOME SERIES
DFA TWO-YEAR GOVERNMENT SERIES
CHARGES FOR EACH SERIES:
.0513% of the first $100 million of net assets
.0308% of net assets
.0205% of net assets over $200 million
The DFA Two-Year Corporate Fixed Income and DFA Two-Year Government Series are
each subject to minimum fees of $54,000 per
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year which are to be phased in over the first year of the Series' operation.
PFPC has agreed to limit the minimum fee for these Series from time to time.
U.S. LARGE COMPANY SERIES
.015% of net assets
(f) The Trust bears all of its own costs and expenses, including: services of
its independent accountants, legal counsel, brokerage fees, commissions and
transfer taxes in connection with the acquisition and disposition of portfolio
securities, taxes, insurance premiums, costs incidental to meetings of its
shareholders and trustees, the cost of filing its registration statement under
federal securities law, reports to shareholders, and transfer and dividend
disbursing agency, administrative services and custodian fees. Expenses
allocable to a particular Series are so allocated and expenses which are not
allocable to a particular Series are borne by each Series on the basis of the
fees of the Trust's administrative agent.
(g) The Advisor places portfolio securities transactions with a view to
obtaining best price and execution. Subject to that goal, transactions may be
placed with securities firms that are affiliated with an affiliate of the
Advisor.
Response to Item 5A has been omitted pursuant to paragraph 4 of Instruction F of
the General Instructions to Form N-1A.
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
(a) All sixteen Series issue shares of beneficial interest with a par value of
$.01 per share without a sales load. The shares of each Series, when issued and
paid for in accordance with this registration statement, will be fully paid and
nonassessable shares, with equal, non-cumulative voting rights, except as
described below, and no preferences as to conversion, exchange, dividends,
redemptions or any other feature. Shareholders shall have the right to vote
only (i) for removal of Trustees, (ii) with respect to such additional matters
relating to the Trust as may be required by the applicable provisions of the
1940 Act, including Section 16(a) thereof, and (iii) on such other matters as
the Trustees may consider necessary or desirable. In addition, the shareholders
of each Series will be asked to vote on any proposal to change a fundamental
investment policy (i.e. a policy that may be changed only with the approval of
shareholders) of that Series. If a shareholder of The Emerging Markets, The
Emerging Markets Small Cap, The U.S. Large Company, Japanese, Pacific Rim,
United Kingdom, Continental or The DFA Two-Year Government Series redeems its
entire interest in the Series or becomes bankrupt, a majority in interest of the
remaining shareholders in such Series must vote within 120 days to approve the
continuing existence of the Series or the Series
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will be liquidated. All shares of the Trust entitled to vote on a matter shall
vote without differentiation between the separate Series on a one-vote-per-share
basis; provided however, if a matter to be voted on affects only the interests
of not all Series, then only the shareholders of such affected Series shall be
entitled to vote on the matter. Investments in The Emerging Markets, The
Emerging Markets Small Cap, The U.S. Large Company, Japanese, Pacific Rim,
United Kingdom, Continental and The DFA Two-Year Government Series may not be
transferred, but an investor may withdraw all or any portion of their investment
at any time at net asset value. If liquidation of the Trust should occur,
shareholders would be entitled to receive on a per class basis the assets of the
particular Series whose shares they own, as well as a proportionate share of
Trust assets not attributable to any particular class. Ordinarily, the Trust
does not intend to hold annual meetings of shareholders, except as required by
the Investment Company Act of 1940 or other applicable law. The Trust's by-laws
provide that meetings of shareholders shall be called for the purpose of voting
upon the question of removal of one or more Trustees upon the written request of
the holders of not less than 10% of the outstanding shares.
(b) As of August 31, 1996, the following persons beneficially owned more than
25% of the voting securities of the following Series:
THE U.S. 6-10 SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc. -
The U.S. 6-10 Small Company Portfolio 82.63%
THE U.S. LARGE COMPANY SERIES
Compass Capital Funds -
Index Equity Portfolio 62.05%
DFA Investment Dimensions Group Inc. -
The U.S. Large Company Portfolio 37.95%
THE DFA ONE-YEAR FIXED INCOME SERIES
DFA Investment Dimensions Group Inc. -
The DFA One-Year Fixed Income Portfolio 99.50%
THE U.S. SMALL CAP VALUE SERIES
DFA Investment Dimensions Group Inc. -
The U.S. Small Cap Value Portfolio 97.04%
THE U.S. LARGE CAP VALUE SERIES
DFA Investment Dimensions Group Inc. -
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The U.S. Large Cap Value Portfolio 54.83%
Dimensional Investment Group Inc. -
U.S. Large Cap Value Portfolio III 40.40%
THE DFA INTERNATIONAL VALUE SERIES
BellSouth Corporation
1155 Peachtree Street N.E.
Atlanta, GA 30367 33.98%
THE EMERGING MARKETS SERIES
DFA Investment Dimensions Group Inc. -
Emerging Markets Portfolio 99.99%
DFA TWO-YEAR CORPORATE FIXED INCOME SERIES
Dimensional Investment Group Inc. -
RWB/DFA Two-Year Corporate Fixed Income Portfolio 100%
DFA TWO-YEAR GLOBAL FIXED INCOME SERIES
DFA Investment Dimensions Group Inc. -
DFA Two-Year Global Fixed Income Portfolio 100%
DFA TWO-YEAR GOVERNMENT SERIES
Dimensional Investment Group Inc. -
DFA Two-Year Government Portfolio 100%
ENHANCED U.S. LARGE COMPANY SERIES
DFA Investment Dimensions Group Inc.
Enhanced U.S. Large Company Portfolio 100%
JAPANESE SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc.
Japanese Small Company Portfolio 100%
UNITED KINGDOM SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc.
United Kingdom Small Company Portfolio 100%
PACIFIC RIM SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc.
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Pacific Rim Small Company Portfolio 100%
CONTINENTAL SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc.
Continental Small Company Portfolio 100%
Each of the above Portfolios of DFA Investment Dimensions Group Inc. ("DFA
IDG") and Dimensional Investment Group Inc. ("DIG") may be deemed to control the
corresponding Series, as "control" is defined in the Investment Company Act of
1940. DFA IDG and DIG are both Maryland corporations and are located at the
same address as the Trust. Compass Capital Funds is a registered, open-end
management investment company that is organized as a Massachusetts business
trust. The Index Equity Portfolio of Compass Capital Funds may be deemed to
"control" as such term is defined in the Investment Company Act of 1940, The
U.S. Large Company Series. The address of Compass Capital Funds is c/o PFPC,
P.O. Box 8907, Wilmington, Delaware 19899-8907.
(c) Not applicable.
(d) Not applicable.
(e) Shareholder inquiries may be made by writing or calling the Trust at 1299
Ocean Avenue, 11th Floor, Santa Monica, California 90401 or (310) 395-8005.
(f) The Trust's policy is to distribute substantially all net investment income
not previously distributed during the year from the Small Company Series, U.S.
Small Cap Value Series, DFA International Value Series, The Emerging Markets
Series and The Emerging Markets Small Cap Series together with any net realized
capital gains in December of each year. In addition, the Corporate Series (as
defined below) will distribute all net investment income earned through the end
of November each year in the month of November. Dividends from net investment
income of The U.S. Large Company Series, Enhanced U.S. Large Company Series and
U.S. Large Cap Value Series, are distributed quarterly, and any net capital
gains are distributed annually after November 30. Net investment income, which
is accrued daily, will be distributed monthly (except for January) by The DFA
One-Year Fixed Income Series and quarterly by The DFA Two-Year Global Fixed
Income, Two-Year Corporate Fixed Income and Two-Year Government Series. Any net
realized capital gains of the Fixed Income Series will be distributed annually
after the end of the fiscal year. Shareholders of the Trust will automatically
receive all income dividends and capital gains distributions in additional
shares of the Series whose shares they hold at net asset value (as of the
business date following the dividend record date), unless as to The U.S. 6-10
Small Company Series, the Fixed Income Series, The U.S. Large Company Series and
the
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U.S. Value Series upon written notice to PFPC, the shareholder selects one of
the following options: (i) Income Option -- to receive income dividends in cash
and capital gains distributions in additional shares at net asset value; (ii)
Capital Gains Option -- to receive capital gains distributions in cash and
income dividends in additional shares at net asset value; or (iii) Cash Option -
- - to receive both income dividends and capital gains distributions in cash.
While shareholders of The Enhanced U.S. Large Company Series will automatically
receive all capital gains distributions in additional shares of the Series, upon
written notice to the Transfer Agent, they may receive all income dividends in
cash.
(g) Each Series of the Trust, other than the Japanese, United Kingdom, Pacific
Rim, Continental, The U.S. Large Company, The Emerging Markets, The Emerging
Markets Small Cap and The DFA Two-Year Government Series, is classified as a
separate corporation for U.S. federal income tax purposes (collectively,
referred to as the "Corporate Series").
Each Corporate Series intends to qualify each year as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), so that it will not be liable for U.S. federal income taxes to the
extent that its net investment income and net realized capital gains are
distributed.
The Japanese, United Kingdom, Pacific Rim, Continental, The U.S. Large Company,
The Emerging Markets, The Emerging Markets Small Cap and The DFA Two-Year
Government Series (together, the "Partnership Series") are classified as
partnerships for U.S. federal income tax purposes.
If a Series of the Trust, including the Partnership Series, purchases shares in
certain foreign investment entities, called "passive foreign investment
companies" ("PFIC"), the Series (and in the case of the Partnership Series, its
investors) may be subject to U.S. federal income tax and a related interest
charge on a portion of any "excess distribution" or gain from the disposition of
such shares even if such income is distributed as a taxable dividend by the
Corporate Series to its shareholders or, in the case of the Partnership Series,
even if such income is distributed to its investors (which may or may not be
taxable). (See below for a more detailed discussion of the Partnership Series).
The Series of the Trust, including the Partnership Series, may be subject to
foreign withholding taxes on income from certain of their foreign securities.
If more than 50% in value of the total assets of a Corporate Series at the end
of its fiscal year are invested in securities of foreign corporations, the
Corporate Series may elect to pass-through to its shareholders their pro rata
share of foreign income taxes paid by the Corporate Series.
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If this election is made, shareholders will be (i) required to include in their
gross income their pro rata share of foreign source income (including any
foreign taxes paid by the Corporate Series), and (ii) entitled to either deduct
their share of such foreign taxes in computing their taxable income or to claim
a credit for such taxes against their U.S. federal income tax, subject to
certain limitations under the Code.
Shareholders will be informed by the Corporate Series at the end of each
calendar year regarding the shareholder's proportionate share of taxes paid to
any foreign country or possession of the United States, and gross income derived
from sources within any foreign country or possession of the United States.
The Enhanced U.S. Large Company Series' investments in Index Derivatives are
subject to complex tax rules which may have the effect of accelerating income or
converting, in part, what otherwise would have been long-term capital gain into
short-term capital gain. These rules may affect both the amount, character and
timing of income distributed to shareholders of The Enhanced U.S. Large Company
Series.
For the Corporate Series with the principal investment policy of investing in
foreign equity securities and non-equity domestic investments, it is anticipated
that only a small portion of such Corporate Series' dividends will qualify for
the corporate dividends received deduction. To the extent that such Corporate
Series pay dividends which qualify for this deduction, the availability of the
deduction is subject to certain holding period and debt financing restrictions
imposed under the Code on the corporation claiming the deduction.
Since virtually all of the net investment income from The DFA One-Year Fixed
Income, Two-Year Global Fixed Income and Two-Year Corporate Fixed Income Series
is expected to arise from earned interest, it is not expected that any of such
Series' distributions will be eligible for the dividends received deduction for
corporations.
For U.S. federal income tax purposes, any income dividends which the shareholder
receives from a Corporate Series, as well as any distributions derived from the
excess of net short-term capital gain over net long-term capital loss, are
treated as ordinary income whether the shareholder has elected to receive them
in cash or in additional shares. Shareholders of a Corporate Series are
notified annually by the Trust as to the U.S. federal tax status of dividends
and distributions paid by the Corporate Series whose shares they own.
Dividends which are declared by a Corporate Series in October, November or
December but which, for operational reasons, may not be paid to the shareholder
until the following January, will be
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treated for U.S. federal income tax purposes as if paid by a Corporate Series
and received by the shareholder on December 31 of the calendar year in which
they are declared.
The sale of shares of a Corporate Series by redemption is a taxable event and
may result in a capital gain or loss. Any loss incurred on sale or exchange of
shares of the Corporate Series, held for six months or less, will be treated as
a long-term capital loss to the extent of capital gain dividends received with
respect to such shares.
The Trust may accept securities or local currencies in exchange for shares of a
Series. A gain or loss for U.S. federal income tax purposes may be realized by
investors in a Corporate Series who are subject to U.S. federal taxation upon
the exchange depending upon the cost of the securities or local currency
exchanged. (See "In Kind Purchases" in Item 7.)
The Series may be required to report to the Internal Revenue Service ("IRS") any
taxable dividend or other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to individuals and other
non-exempt shareholders who have not provided a correct taxpayer identification
number and made certain required certifications that appear in the Shareholder
Application form. A shareholder may also be subject to backup withholding if
the IRS or a broker notifies the Corporate Series that the number furnished by
the shareholder is incorrect or that the shareholder is subject to backup
withholding for previous under-reporting of interest or dividend income.
Shareholders of the Corporate Series who are not U.S. persons for purposes of
U.S. federal income taxation, should consult with their tax advisors regarding
the applicability of U.S. withholding and other taxes to distributions received
by them from the Corporate Series and the application of foreign tax laws to
these distributions.
Shareholders should also consult their tax advisors with respect to the
applicability of any state and local intangible property or income taxes to
their shares of the Corporate Series and distributions and redemption proceeds
received from the Corporate Series.
The Partnership Series are series of a trust organized under Delaware law. The
Partnership Series will not be subject to any U.S. federal income tax. Instead,
each investor will be required to report separately on its own U.S. federal
income tax return its distributive share (as determined in accordance with the
governing instruments of the Partnership Series) of a Partnership Series'
income, gains, losses, deductions and credits. Each investor will be required
to report its distributive share
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regardless of whether it has received a corresponding distribution of cash or
property from a Partnership Series. An allocable share of a tax-exempt
investor's income will be "unrelated business taxable income" ("UBTI") only to
the extent that a Partnership Series borrows money to acquire property or
invests in assets that produce UBTI. In addition to U.S. federal income taxes,
investors in the Partnership Series may also be subject to state and local taxes
on their distributive share of a Partnership Series' income.
The Partnership Series' taxable year-end will be November 30. Although, as
described above, the Partnership Series will not be subject to U.S. federal
income tax, they will file appropriate U.S. federal income tax returns.
While the Partnership Series are not classified as "regulated investment
companies" under Subchapter M of the Code, the Partnership Series' assets,
income and distributions will be managed in such a way that an investor in the
Series will be able to satisfy the requirements of Subchapter M of the Code,
assuming that the investor invested all of its assets in a Partnership Series
for such Series' entire fiscal year.
There are certain other tax issues that will be relevant to only certain of the
investors; for instance, investors that are segregated asset accounts and
investors who contribute assets rather than cash to the Partnership Series. It
is intended that contributions of assets will not be taxable provided certain
requirements are met. Such investors are advised to consult their own tax
advisors as to the tax consequences of an investment in the Partnership Series.
Redemptions of shares in a Partnership Series may be taxable. In general, a
redemption of shares resulting in a distribution of cash by a Partnership Series
to an investor in excess of that investor's tax basis in its shares of such
Partnership Series is taxable to the extent of such excess.
The Partnership Series will inform investors of the source of dividends and
distributions at the time they are paid and will promptly after the close of
each fiscal year advise investors of their allocable share of a Partnership
Series' income, gains, losses deductions and credits for U.S. federal income tax
purposes.
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED
(a) The Trust's shares have not been registered under the Securities Act of
1933, which means that its shares may not be sold publicly. However, the Trust
may sell its shares through private placements pursuant to available exemptions
from registration under that Act.
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Shares of the Trust are sold only to other investment companies and certain
institutional investors. Shares of The Emerging Markets, Emerging Markets Small
Cap, Japanese, Pacific Rim and Continental Series are sold at a price which is
equal to the net asset value of such shares plus a reimbursement fee. (SEE Item
7(b).) Shares of the other Series are sold at net asset value without a sales
charge. Shares are purchased at the net asset value next determined after the
Trust receives the order in proper form. All investments are credited to the
shareholder's account in the form of full and fractional shares of the Series
calculated to three decimal places. In the interest of economy and convenience,
certificates for shares will not be issued.
The Trust distributes its own shares. It has, however, entered into an
agreement with DFA Securities Inc., a wholly-owned subsidiary of the Advisor,
pursuant to which DFA Securities Inc. is responsible for supervising the sale of
shares of each Series. No compensation is paid by the Trust to DFA Securities
Inc. under this agreement.
IN KIND PURCHASES
If accepted by the Trust, shares of the Series may be purchased in exchange for
securities which are eligible for purchase or otherwise represented in the
Series' portfolios at the time of the exchange as described in this registration
statement or in exchange for local currencies in which such securities of the
Japanese, United Kingdom, Pacific Rim, Continental, The DFA International Value,
The Emerging Markets, The Emerging Markets Small Cap, The DFA Two-Year Global
Fixed Income and The Enhanced U.S. Large Company Series are denominated.
Securities and local currencies to be exchanged which are accepted by the Trust
and Trust shares to be issued therefore will be valued, as set forth under
"Valuation of Shares" in Item 7(b), at the time of the next determination of net
asset value after such acceptance. All dividends, interest, subscription, or
other rights pertaining to such securities shall become the property of the
Series whose shares are being acquired and must be delivered to the Trust by the
investor upon receipt from the issuer. Investors who desire to purchase shares
of the Japanese, United Kingdom, Pacific Rim, Continental, The DFA International
Value or DFA Two-Year Global Fixed Income with local currencies should first
contact the Adviser for wire instructions.
The Trust will not accept securities in exchange for shares of a Series unless:
(1) such securities are eligible to be included, or otherwise represented, in
the Series' portfolios at the time of exchange and current market quotations are
readily available for such securities; (2) the investor represents and agrees
that all securities offered to be exchanged are not subject to any restrictions
upon their sale by the Series under the Securities Act of 1933 or under the laws
of the country in which the
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principal market for such securities exists, or otherwise; and (3) at the
discretion of the Series, the value of any such security (except U.S. Government
Securities) being exchanged together with other securities of the same issuer
owned by the Series will not exceed 5% of the net assets of the Series
immediately after the transaction. (See Item 4(a)(i).) Investors interested in
such exchanges should contact the Advisor. Investors should also know that an
in-kind purchase of shares of a Series may result in taxable income; an investor
desiring to make an in-kind purchase should consult its tax advisor.
(b) VALUATION OF SHARES
The net asset value per share of each Series is calculated as of the close of
the NYSE by dividing the total market value of the Series' investments and other
assets, less any liabilities, by the total outstanding shares of the stock of
the Series. The value of the shares of each Series will fluctuate in relation
to its own investment experience. Securities held by the Series which are
listed on the securities exchange and for which market quotations are available
are valued at the last quoted sale price of the day or, if there is no such
reported sale, The U.S. 6-10 Small Company, The U.S. Large Company, The DFA
International Value, the U.S. Value, The Emerging Markets and The Emerging
Markets Small Cap Series value such securities at the mean between the most
recent quoted bid and asked prices. Price information on listed securities is
taken from the exchange where the security is primarily traded. Securities
issued by open-end investment companies, such as the Series, are valued using
their respective net asset values for purchase orders placed at the close of the
NYSE. Unlisted securities for which market quotations are readily available are
valued at the mean between the most recent bid and asked prices. The value of
other assets and securities for which no quotations are readily available
(including restricted securities) are determined in good faith at fair value in
accordance with procedures adopted by the Board of Trustees. The net asset
values per share of the Japanese, Pacific Rim, Continental, United Kingdom, The
DFA International Value, The DFA Two-Year Global Fixed Income, The Emerging
Markets and The Emerging Markets Small Cap Series are expressed in U.S. dollars
by translating the net assets of each Series using the bid price for the dollar
as quoted by generally recognized reliable sources.
The value of the shares of the Fixed Income Series will tend to fluctuate with
interest rates because, unlike money-market funds, such Series do not seek to
stabilize the value of their shares by use of the "amortized cost" method of
asset valuation. Net asset value includes interest on fixed income securities
which is accrued daily. Securities which are traded OTC and on a stock exchange
will be valued according to the broadest and most
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representative market, and it is expected that for bonds and other fixed-income
securities this ordinarily will be the OTC market. Securities held by the Fixed
Income Series may be valued on the basis of prices provided by a pricing service
when such prices are believed to reflect the current market value of such
securities. Other assets and securities for which quotations are not readily
available will be valued in good faith at fair value using methods determined by
the Board of Trustees.
Generally, trading in foreign securities markets is completed each day at
various times prior to the close of the NYSE. The values of foreign securities
held by those Series that invest in such securities are determined as of such
times for the purpose of computing the net asset value of the Series. If events
which materially affect the value of the investments of the Series occur
subsequent to the close of the securities market on which such securities are
primarily traded, the investments affected thereby will be valued at "fair
value" as described above.
Certain of the securities holdings of The Emerging Markets Series and The
Emerging Markets Small Cap Series in Approved Markets may be subject to tax,
investment and currency repatriation regulations of the Approved Markets that
could have a material effect on the valuation of the securities. For example, a
Series might be subject to different levels of taxation on current income and
realized gains depending upon the holding period of the securities. In general,
a longer holding period (E.G., 5 years) may result in the imposition of lower
tax rates than a shorter holding period (E.G., 1 year). The Series may also be
subject to certain contractual arrangements with investment authorities in an
Approved Market which require a Series to maintain minimum holding periods or to
limit the extent of repatriation of income and realized gains. As a result, the
valuation of particular securities at any one time may depend materially upon
the assumptions that a Series makes at that time concerning the anticipated
holding period for the securities. Absent special circumstances as determined
by the Board of Trustees, it is presently intended that the valuation of such
securities will be based upon the assumption that they will be held for at least
the amount of time necessary to avoid higher tax rates or penalties and currency
repatriation restrictions. However, the use of such valuation standards will
not prevent the Series from selling such securities in a shorter period of time
if the Advisor considers the earlier sale to be a more prudent course of action.
Revision in valuation of those securities will be made at the time of the
transaction to reflect the actual sales proceeds inuring to the Series.
Futures contracts are valued using the settlement price established each day on
the exchange on which they are traded. The value of such futures contracts held
by a Portfolio or Series are determined each day as of such close.
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It is management's belief that payment of a reimbursement fee by each investor,
which is used to defray significant costs associated with investing proceeds of
the sale of their shares to such investors, will eliminate a dilutive effect
such costs would otherwise have on the net asset value of shares held by
previous investors. Therefore, the shares of The Emerging Markets, Emerging
Markets Small Cap, Japanese, Pacific Rim and Continental Series are sold at an
offering price which is equal to the current net asset value of such shares plus
a reimbursement fee. The amount of the reimbursement fee represents
management's estimate of the costs reasonably anticipated to be associated with
the purchase of securities by that Series, and is paid to the Series and used by
it to defray such costs. Such costs include brokerage commissions on listed
securities and imputed commissions on OTC securities. The reimbursement fee for
The Emerging Markets Series and the Japanese Series, expressed as a percentage
of the net asset value of each Series' shares, is 0.50%. The reimbursement fee
for The Emerging Markets Small Cap, Pacific Rim and Continental Series,
expressed as a percentage of the net assets of each Series' shares, is 1.00%.
Reinvestments of dividends and capital gains distributions paid by the Series
and in-kind investments are not subject to a reimbursement fee.
The offering price of shares of each Series, except for The Emerging Markets,
Emerging Markets Small Cap, Japanese, Pacific Rim, and Continental Series, is
the net asset value thereof next determined after the receipt of the investor's
funds by the Custodian, provided that the purchase order in good order has been
received by the Transfer Agent; no sales charge or reimbursement fee is imposed.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
ITEM 8. REDEMPTION OR REPURCHASE
(a) As stated above in response to Item 7(a), "Purchase of Securities Being
Offered," the Trust's shares have not been registered under the Securities Act
of 1933, which means that its shares are restricted securities which may not be
sold unless registered or pursuant to an available exemption from that Act.
Investors who desire to redeem shares of a Series must first contact the Advisor
at (310) 395-8005. Redemptions are processed on any day on which the Trust is
open for business and are
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effected at the Series' net asset value next determined after the Series
receives a redemption request in good form.
Redemption payments in cash will ordinarily be made within seven days after
receipt of the redemption request in good form. However, the right of
redemption may be suspended or the date of payment postponed in accordance with
the 1940 Act. The amount received upon redemption may be more or less than the
amount paid for the shares depending upon the fluctuations in the market value
of the assets owned by the Series.
If the Board of Trustees determines that it would be detrimental to the best
interests of the remaining shareholders of any Series to make payment wholly or
partly in cash, a Series may pay the redemption price in whole or in part by a
distribution of portfolio securities from the Series of the shares being
redeemed in lieu of cash in accordance with Rule 18f-1 under the Investment
Company Act of 1940. Investors may incur brokerage charges and other
transaction costs selling securities that were received in payment of
redemptions.
For additional information about redemption of Trust shares, see Items 19(a) and
(b) in Part B.
(b) Not applicable.
(c) Not applicable.
(d) Although the redemption payments will ordinarily be made within seven days
after receipt, payment to investors redeeming shares which were purchased by
check will not be made until the Trust can verify that the payments for the
purchase have been, or will be, collected, which may take up to fifteen days or
more. Investors may avoid this delay by submitting a certified check along with
the purchase order.
ITEM 9. PENDING LEGAL PROCEEDINGS
Not applicable.
Part B:
ITEM 10. COVER PAGE
Not applicable.
ITEM 11. TABLE OF CONTENTS
Not applicable.
ITEM 12. GENERAL INFORMATION AND HISTORY
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Not applicable.
ITEM 13. INVESTMENT OBJECTIVES AND POLICIES
(a) SEE Item 4(a)(ii) of Part A for a discussion of the investment policies of
each Series of the Trust.
(b) In addition to the policies stated in response to Item 4(a)(ii) of Part A,
each of the Series has adopted certain limitations which may not be changed with
respect to any Series without the approval of a majority of the outstanding
voting securities of the Series. A "majority" is defined as the lesser of: (1)
at least 67% of the voting securities of the Series (to be affected by the
proposed change) present at a meeting if the holders of more than 50% of the
outstanding voting securities of the Series are present or represented by proxy,
or (2) more than 50% of the outstanding voting securities of such Series.
The Series will not:
(1) invest in commodities or real estate, including limited partnership
interests therein, although they may purchase and sell securities of companies
which deal in real estate and securities which are secured by interests in real
estate, and all Series except The U.S. 6-10 Small Company Series and The DFA
One-Year Fixed Income Series may purchase or sell financial futures contracts
and options thereon; and The Enhanced U.S. Large Company Series may purchase,
sell and enter into indices-related futures contracts, options on such futures
contracts, securities-related swap agreements and other derivative instruments;
(2) make loans of cash, except through the acquisition of repurchase agreements
and obligations customarily purchased by institutional investors;
(3) as to 75% of the total assets of a Series, invest in the securities of any
issuer (except obligations of the U.S. Government and its instrumentalities) if,
as a result more than 5% of the Series' total assets, at market, would be
invested in the securities of such issuer;
(4) purchase or retain securities of an issuer if those officers and trustees of
the Trust or officers and directors of the Advisor owning more than 1/2 of 1% of
such securities together own more than 5% of such securities;
(5) borrow, except from banks and as a temporary measure for extraordinary or
emergency purposes and then, in no event, in excess of 5% of a Series' gross
assets valued at the lower of market or cost; provided that each Series, except
The DFA One-Year Fixed Income Series and the Japanese Series, may borrow
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amounts not exceeding 33% of their net assets from banks and pledge not more
than 33% of such assets to secure such loans;
(6) pledge, mortgage, or hypothecate any of its assets to an extent greater than
10% of its total assets at fair market value, except as described in (5) above;
(7) invest more than 10% of the value of the Series' total assets in illiquid
securities which include certain restricted securities, repurchase agreements
with maturities of greater than seven days, and other illiquid investments,
provided that The Enhanced U.S. Large Company, The DFA Two-Year Corporate Fixed
Income, The DFA Two-Year Government, The DFA Two-Year Global Fixed Income and
The Emerging Markets Small Cap Series are not subject to this limitation, and
The DFA International Value Series, the U.S. Value Series, The U.S. 6-10 Small
Company Series and The Emerging Markets Series may invest not more than 15% of
their total assets in illiquid securities;
(8) engage in the business of underwriting securities issued by others;
(9) invest for the purpose of exercising control over management of any company;
(10) invest its assets in securities of any investment company, except in
connection with a merger, acquisition of assets, consolidation or
reorganization, provided that (a) The Emerging Markets, Emerging Markets Small
Cap, Japanese, United Kingdom, Pacific Rim and Continental Series are not
subject to this limitation; and (b) The Enhanced U.S. Large Company Portfolio
may invest its assets in securities of investment companies and units of such
companies such as, but not limited to, S & P Depository Receipts;
(11) invest more than 5% of its total assets in securities of companies which
have (with predecessors) a record of less than three years' continuous
operation;
(12) acquire any securities of companies within one industry if, as a result of
such acquisition, more than 25% of the value of the Series' total assets would
be invested in securities of companies within such industry, except The DFA One-
Year Fixed Income, Two-Year Corporate Fixed Income and Two-Year Global Fixed
Income Series shall invest more than 25% of their total assets in obligations of
banks and bank holding companies in the circumstances described in this
registration statement in "Investments in the Banking Industry" under Item
4(a)(ii) of Part A;
(13) write or acquire options (except as described in (1) above) or interests in
oil, gas or other mineral exploration, leases or
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development programs except the Enhanced U.S. Large Company Series may write or
acquire options;
(14) purchase warrants; however, each Series, except The DFA One-Year Fixed
Income Series, Two-Year Corporate Fixed Income Series, Two-Year Global Fixed
Income Series and Two-Year Government Series (the "Fixed Income Series"), may
acquire warrants as a result of corporate actions involving its holdings of
other equity securities;
(15) purchase securities on margin or sell short; or
(16) acquire more than 10% of the voting securities of any issuer, provided that
this limitation applies only to 75% of the assets of the U.S. Value Series, The
Emerging Markets Series and The Emerging Markets Small Cap Series.
The investment limitations described in (1) and (15) above do not prohibit each
Series that may purchase or sell financial futures contracts and options thereon
from making margin deposits to the extent permitted under applicable
regulations; and the investment limitations described in (1), (13) and (15)
above do not prohibit The Enhanced U.S. Large Company Series from (i) making
margin deposits in connection with transactions in options; and (ii) maintaining
a short position, or purchasing, writing or selling puts, calls, straddles,
spreads or combinations thereof in connection with transactions in options,
futures, and options on futures and transactions arising under swap agreements
or other derivative instruments;
For purposes of (5) above, The Emerging Markets Series and The Emerging Markets
Small Cap Series may borrow in connection with a foreign currency transaction or
the settlement of a portfolio trade. The only type of borrowing contemplated
thereby is the use of a letter of credit issued on such Series' behalf in lieu
of depositing initial margin in connection with currency futures contracts, and
the Series have no present intent to engage in any other types of borrowing
transactions under this authority. Although (2) above prohibits cash loans, the
Series are authorized to lend portfolio securities. (See "Securities Loans" in
Item 4(a)(ii) of Part A.)
For the purposes of (7) above, The DFA One-Year Fixed Income, Two-Year Corporate
Fixed Income and Two-Year Global Fixed Income Series may invest in commercial
paper that is exempt from the registration requirements of the Securities Act of
1933 (the "1933 Act") subject to the requirements regarding credit ratings
stated in this registration statement under Item 4. Further, pursuant to Rule
144A under the 1933 Act, the Series may purchase certain unregistered (i.e.
restricted) securities upon a determination that a liquid institutional market
exists for the securities. If it is decided that a liquid market does exist,
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the securities will not be subject to the 10% or 15% limitation on holdings of
illiquid securities stated in (7) above. While maintaining oversight, the Board
of Trustees has delegated the day-to-day function of making liquidity
determinations to the Advisor. For 144A securities to be considered liquid,
there must be at least two dealers making a market in such securities. After
purchase, the Board of Trustees and the Advisor will continue to monitor the
liquidity of Rule 144A securities.
For the purposes of (12) above, utility companies will be divided according to
their services; e.g., gas, gas transmission, electric and gas, electric, water
and telephone will each be considered a separate industry.
(c) Although not a fundamental policy subject to shareholder approval: (1) The
U.S. 6-10 Series, Japanese Series, United Kingdom Series, Pacific Rim Series and
Continental Series, will not purchase interests in any real estate investment
trust and (2) The Enhanced U.S. Large Company, The DFA Two-Year Corporate Fixed
Income, Two-Year Government, Two-Year Global Fixed Income and Emerging Markets
Small Cap Series do not intend to invest more than 15% of their total assets in
illiquid securities.
The Japanese, United Kingdom, Pacific Rim, Continental, DFA International Value,
The DFA Two-Year Global Fixed Income, The Emerging Markets and The Emerging
Markets Small Cap Series may acquire and sell forward foreign currency exchange
contracts in order to hedge against changes in the level of future currency
rates. Such contracts involve an obligation to purchase or sell a specific
currency at a future date at a price set in the contract. While the U.S. Value
Series and The DFA International Value Series have retained authority to buy and
sell financial futures contracts and options thereon, they have no present
intention to do so.
Notwithstanding any of the above investment restrictions, The Emerging Markets
Series and The Emerging Markets Small Cap Series may establish subsidiaries or
other similar vehicles for the purpose of conducting their investment operations
in Approved Markets, if such subsidiaries or vehicles are required by local laws
or regulations governing foreign investors such as the Series or whose use is
otherwise considered by the Series to be advisable. Such Series would "look
through" any such vehicle to determine compliance with their investment
restrictions.
Unless otherwise indicated, all limitations applicable to the Series'
investments apply only at the time that a transaction is undertaken. Any
subsequent change in a rating assigned by any rating service to a security or
change in the percentage of a Series' assets invested in certain securities or
other
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instruments resulting from market fluctuations or other changes in a Series'
total assets will not require a Series to dispose of an investment until the
Advisor determines that it is practicable to sell or closeout the investment
without undue market or tax consequences. In the event that ratings services
assign different ratings to the same security, the Advisor will determine which
rating it believes best reflects the security's quality and risk at that time,
which may be the higher of the several assigned ratings.
Because the structure of each Series, except the Fixed Income Series, is based
on the relative market capitalizations of eligible holdings, it is possible that
the Series might include at least 5% of the outstanding voting securities of one
or more issuers. In such circumstances, the Trust and the issuer would be
deemed "affiliated persons" under the Investment Company Act of 1940 and certain
requirements of the Act regulating dealings between affiliates might become
applicable.
OPTIONS ON STOCK INDICES
The Enhanced U.S. Large Company Series may purchase and sell options on stock
indices. With respect to the sale of call options on stock indices, pursuant to
published positions of the Securities and Exchange Commission ("SEC"), The
Enhanced U.S. Large Company Series will either (1) maintain with its custodian
liquid assets equal to the contract value (less any margin deposits); (2) hold a
portfolio of stocks substantially replicating the movement of the index
underlying the call option; or (3) hold a separate call on the same index as the
call written where the exercise price of the call held is (a) equal to or less
than the exercise price of the call written, or (b) greater than the exercise
price of the call written, provided the difference is maintained by the Series
in liquid assets in a segregated account with its custodian. With respect to
the sale of put options on stock indices, pursuant to published SEC positions,
The Enhanced U.S. Large Company Series will either (1) maintain liquid assets
equal to the exercise price (less any margin deposits) in a segregated account
with its custodian; or (2) hold a put on the same index as the put written where
the exercise price of the put held is (a) equal to or greater than the exercise
price of the put written, or (b) less than the exercise price of the put
written, provided an amount equal to the difference is maintained by the Series
in liquid assets in a segregated account with its custodian.
Prior to the earlier of exercise or expiration, an option may be closed out by
an offsetting purchase or sale of an option of the same series (type, exchange,
underlying index, exercise price, and expiration). There can be no assurance,
however, that a
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closing purchase or sale transaction can be effected when The Enhanced U.S.
Large Company Series desires.
The Enhanced U.S. Large Company Series will realize a gain from a closing
purchase transaction if the cost of the closing option is less than the premium
received from writing the option, or, if it is more, the Series will realize a
loss. The principal factors affecting the market value of a put or a call
option include supply and demand, interest rates, the current market price of
the underlying index in relation to the exercise price of the option, the
volatility of the underlying index, and the time remaining until the expiration
date.
If an option written by The Enhanced U.S. Large Company Series expires, the
Series realizes a gain equal to the premium received at the time the option was
written. If an option purchased by the Series expires unexercised, the Series
realizes a loss equal to the premium paid.
The premium paid for a put or call option purchased by The Enhanced U.S. Large
Company Series is an asset of the Series. The premium received for an option
written by the Series is recorded as a deferred credit. The value of an option
purchased or written is marked to market daily and is valued at the closing
price on the exchange on which it is traded or, if not traded on an exchange or
no closing price is available, at the mean between the last bid and asked
prices.
RISKS ASSOCIATED WITH OPTIONS ON INDICES
There are several risks associated with transactions in options on indices. For
example, there are significant differences between the securities and options
markets that could result in an imperfect correlation between these markets,
causing a given transaction not to achieve its objectives. The value of an
option position will reflect, among other things, the current market price of
the underlying index, the time remaining until expiration, the relationship of
the exercise price, the term structure of interest rates, estimated price
volatility of the underlying index and general market conditions. A decision as
to whether, when and how to use options involves the exercise of skill and
judgment, and even a well-conceived transaction may be unsuccessful to some
degree because of market behavior or unexpected events.
Options normally have expiration dates of up to 90 days. The exercise price of
the options may be below, equal to or above the current market value of the
underlying index. Purchased options that expire unexercised have no value.
Unless an option purchased by The Enhanced U.S. Large Company Series is
exercised or unless a closing transaction is effected with respect to that
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position, The Enhanced U.S. Large Company Series will realize a loss in the
amount of the premium paid and any transaction costs.
A position in an exchange-listed option may be closed out only on an exchange
that provides a secondary market for identical options. Although The Enhanced
U.S. Large Company Series intends to purchase or write only those options for
which there appears to be an active secondary market, there is no assurance that
a liquid secondary market will exist for any particular option at any specific
time. Closing transactions may be effected with respect to options traded in
the over-the-counter markets only by negotiating directly with the other party
to the option contract, or in a secondary market for the option if such a market
exists. There can be no assurance that The Enhanced U.S. Large Company Series
will be able to liquidate an over-the-counter option at a favorable price at any
time prior to expiration. In the event of insolvency of the counter-party, the
Series may be unable to liquidate an over-the-counter option. Accordingly, it
may not be possible to effect closing transactions with respect to certain
options, with the result that The Enhanced U.S. Large Company Series would have
to exercise those options which they have purchased in order to realize any
profit. With respect to options written by The Enhanced U.S. Large Company
Series, the inability to enter into a closing transaction may result in material
losses to the Series.
Index prices may be distorted if trading of a substantial number of securities
included in the index is interrupted causing the trading of options on that
index to be halted. If a trading halt occurred, The Enhanced U.S. Large Company
Series would not be able to close out options which it had purchased and may
incur losses if the underlying index moved adversely before trading resumed. If
a trading halt occurred and restrictions prohibiting the exercise of options
were imposed through the close of trading on the last day before expiration,
exercises on that day would be settled on the basis of a closing index value
that may not reflect current price information for securities representing a
substantial portion of the value of the index.
The Enhanced U.S. Large Company Series' activities in the options markets may
result in higher fund turnover rates and additional brokerage costs; however,
the Series may also save on commissions by using options as a hedge rather than
buying or selling individual securities in anticipation or as a result of market
movements.
INVESTMENT LIMITATIONS ON OPTIONS TRANSACTIONS
The ability of The Enhanced U.S. Large Company Series to engage in options
transactions is subject to certain limitations. The Series may purchase call
and put options to the extent that the premiums paid by the Series on all such
outstanding options do
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not exceed 20% of the Series' net assets. The Enhanced U.S. Large Company
Series may only purchase put options to the extent that the premiums on all
outstanding put options do not exceed 20% of the Series' net assets. With
regard to the writing of put options, The Enhanced U.S. Large Company Series
will limit the aggregate value of the obligations underlying such put options to
50% of the Series' net assets. The Enhanced U.S. Large Company Series will only
invest in over-the-counter options to the extent consistent with the 15% limit
on investments in illiquid securities.
FUTURES CONTRACTS
All Series except The U.S. 6-10 Small Company Series and The DFA One-Year Fixed
Income Series may enter into index futures contracts and options on index
futures contracts for the purpose of remaining fully invested and to maintain
liquidity to pay redemptions. In addition, The Enhanced U.S. Large Company
Series may use futures contracts and options thereon to hedge against securities
prices or as part of its overall investment strategy.
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of defined securities at a specified future
time and at a specified price. Futures contracts which are standardized as to
maturity date and underlying financial instrument are traded on national futures
exchanges. The Series will be required to make a margin deposit in cash or
government securities with a broker or custodian to initiate and maintain
positions in futures contracts. Minimal initial margin requirements are
established by the futures exchange, and brokers may establish margin
requirements which are higher than the exchange requirements. After a futures
contract position is opened, the value of the contract is marked to market
daily. If the futures contract price changes to the extent that the margin on
deposit does not satisfy margin requirements, payment of additional "variation"
margin will be required. Conversely, reduction in the contract value may reduce
the required margin resulting in a repayment of excess margin to the Series.
Variation margin payments are made to and from the futures broker for as long as
the contract remains open. The Series expect to earn income on their margin
deposits. Pursuant to current regulations, a Series will not enter into futures
contract transactions if, immediately thereafter, its margin deposits on open
contracts exceeds 5% of the market value of the Series' total assets. In
addition, to the extent that a Series invests in futures contracts and options
thereon for other than bona fide hedging purposes, no Series will enter into
such transactions if, immediately thereafter, the sum of the amount of initial
margin deposits and premiums paid for open futures options would exceed 5% of
the Series' total assets, after taking into account unrealized profits and
unrealized losses on such contracts it has entered into; provided, however,
that, in the
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case of an option that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in calculating the 5%. Pursuant to published positions
of the SEC, the Series may be required to maintain segregated accounts
consisting of liquid assets (or, as permitted under applicable regulation, enter
into offsetting positions) in connection with its futures contract transactions
in order to cover its obligations with respect to such contracts.
Positions in futures contracts may be closed out only on an exchange which
provides a secondary market. However, there can be no assurance that a liquid
secondary market will exist for any particular futures contract at any specific
time. Therefore, it might not be possible to close a futures position and, in
the event of adverse price movements, the Series would continue to be required
to continue to make variation margin deposits. In such circumstances, if the
Series has insufficient cash, it might have to sell portfolio securities to meet
daily margin requirements at a time when it might be disadvantageous to do so.
Management intends to minimize the possibility that it will be unable to close
out a futures contract by only entering into futures which are traded on
national futures exchanges and for which there appears to be a liquid secondary
market.
(d) Because the relative market capitalizations of small companies compared
with larger companies generally do not change substantially over short periods
of time, the portfolio turnover rate of each of the Small Company Series
ordinarily is anticipated to be low and is not expected to exceed 25% per year.
Generally, securities will be purchased with the expectation that they will be
held for longer than one year. Generally, securities will be held until such
time as, in the Advisor's judgment, they are no longer considered an appropriate
holding in light of the policy of maintaining portfolios of companies with small
market capitalization.
For a discussion of The Emerging Markets Small Cap Series' policy with respect
to portfolio turnover, see Item 4(a)(ii) in Part A under "The Emerging Markets
Series and The Emerging Markets Small Cap Series - Portfolio Structure."
Ordinarily, portfolio securities in The U.S. Large Company Series will not be
sold except to reflect additions or deletions of the stocks that comprise the
S&P 500 Index, including mergers, reorganizations and similar transactions and,
to the extent necessary, to provide cash to pay redemptions of the Series'
shares.
ITEM 14. MANAGEMENT OF THE REGISTRANT
(a) AND (b) TRUSTEES AND OFFICERS
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The names, ages and addresses of the trustees and officers of the Trust and a
brief statement of their present positions and principal occupations during the
past five years is set forth below. As used below, "DFA Entities" refers to the
following: Dimensional Fund Advisors Inc., Dimensional Fund Advisors Ltd., DFA
Australia Pty. Limited, DFA Investment Dimensions Group Inc. (Registered
Investment Company), Dimensional Emerging Markets Fund Inc. (Registered
Investment Company), Dimensional Investment Group Inc. (Registered Investment
Company) and DFA Securities Inc.
TRUSTEES
David G. Booth*, 50, Trustee, President and Chairman-Chief Executive Officer,
Santa Monica, CA. President, Chairman-Chief Executive Officer and Director of
all DFA Entities, except Dimensional Fund Advisors Ltd., of which he is Chairman
and Director.
George M. Constantinides, 49, Trustee, Chicago, IL. Leo Melamed Professor of
Finance, Graduate School of Business, University of Chicago. Director, DFA
Investment Dimensions Group Inc., Dimensional Investment Group Inc. and
Dimensional Emerging Markets Fund Inc.
John P. Gould, 57, Trustee, Chicago, IL. Steven G. Rothmeier Distinguished
Service Professor of Economics, Graduate School of Business, University of
Chicago. Trustee, First Prairie Funds (registered investment companies).
Director, DFA Investment Dimensions Group Inc., Dimensional Investment Group
Inc., Dimensional Emerging Markets Fund Inc. and Harbor Investment Advisors.
Executive Vice President, Lexecon Inc. (economics, law, strategy and finance
consulting).
Roger G. Ibbotson, 53, Trustee, New Haven, CT. Professor in Practice of
Finance, Yale School of Management. Director, DFA Investment Dimensions Group
Inc., Dimensional Investment Group Inc., Dimensional Emerging Markets Fund Inc.,
Hospital Fund, Inc. (investment management services) and Birr Portfolio
Analysis, Inc. (software products). Chairman and President, Ibbotson
Associates, Inc., Chicago, IL (software, data, publishing and consulting).
Merton H. Miller, 73, Trustee, Chicago, IL. Robert R. McCormick Distinguished
Service Professor Emeritus, Graduate School of Business, University of Chicago.
Director, DFA Investment Dimensions Group Inc., Dimensional Investment Group
Inc. and Dimensional Emerging Markets Fund Inc. Public Director, Chicago
Mercantile Exchange.
Myron S. Scholes, 55, Trustee, Greenwich, CT. Limited Partner, Long-Term
Capital Management L.P. (money manager). Frank E. Buck
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Professor of Finance, Graduate School of Business and Professor of Law, Law
School, Senior Research Fellow, Hoover Institution, (all) Stanford University
(on leave). Director, DFA Investment Dimensions Group Inc., Dimensional
Investment Group Inc., Dimensional Emerging Markets Fund Inc., Benham Capital
Management Group of Investment Companies and Smith Breedon Group of Investment
Companies.
Rex A. Sinquefield*, 52, Trustee, Chairman and Chief Investment Officer, Santa
Monica, CA. Chairman-Chief Investment Officer and Director of all DFA Entities,
except Dimensional Fund Advisors Ltd., of which he is Chairman, Chief Executive
Officer and Director.
* Interested Trustee of the Trust.
OFFICERS
Arthur Barlow, 41, Vice President, Santa Monica, CA. Vice President of all DFA
Entities.
Truman Clark, 55, Vice President, Santa Monica, CA. Vice President of all DFA
Entities. Consultant until October, 1995 and Principal and Manager of Product
Development, Wells Fargo Nikko Investment Advisors, San Francisco, CA from 1990-
1994.
Maureen Connors, 60, Vice President, Santa Monica, CA. Vice President of all
DFA Entities.
Robert Deere, 39, Vice President, Santa Monica, CA. Vice President of all DFA
Entities.
Irene R. Diamant, 46, Vice President and Secretary, Santa Monica, CA. Vice
President and Secretary of all DFA Entities except Dimensional Fund Advisors
Ltd. for which she is Vice President.
Eugene Fama, Jr., 35, Vice President, Santa Monica, CA. Vice President of all
DFA Entities.
David Plecha, 35, Vice President, Santa Monica, CA. Vice President of all DFA
Entities.
George Sands, 40, Vice President, Santa Monica, CA. Vice President of all DFA
Entities. Managing Director, Assets Strategy Consulting, Los Angeles, CA from
1991 to 1992 and previously Vice President of Wilshire Associates, Santa Monica,
CA.
Michael T. Scardina, 41, Vice President, Chief Financial Officer, Controller and
Treasurer, Santa Monica, CA. Vice President, Chief Financial Officer,
Controller and Treasurer of all DFA Entities.
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Cem Severoglu, 33, Vice President, Santa Monica, CA. Vice President of all DFA
Entities.
Jeanne C. Sinquefield, Ph.D., 50, Executive Vice President, Santa Monica, CA.
Executive Vice President of all DFA Entities.
Rex A. Sinquefield, Trustee, Chairman and Chief Investment Officer of the Trust,
and Jeanne C. Sinquefield, Executive Vice President of the Trust, are husband
and wife.
(c) Set forth below is a table listing, for each Trustee entitled to receive
compensation, the compensation received from the Trust during the fiscal year
ended November 30, 1995 and the total compensation received from all four
registered investment companies for which the Advisor serves as investment
advisor during that same fiscal year.
Aggregate Total Compensation
Compensation from Trust and
Trustee from Trust Fund Complex
- ------- ------------ ------------------
George M. Constantinides $ 5,000 $ 30,000
John P. Gould $ 5,000 $ 30,000
Roger G. Ibbotson $ 5,000 $ 30,000
Merton H. Miller $ 4,000 $ 24,000
Myron S. Scholes $ 5,000 $ 30,000
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
(a) See Item 6(b).
(b) As of August 31, 1996, the following shareholders own beneficially at least
5% of the outstanding shares of the Series, as set forth below. Unless
otherwise indicated, the address of each shareholder is 1299 Ocean Avenue, 11th
Floor, Santa Monica, CA 90401.
THE U.S. 6-10 SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc. -
The U.S. 6-10 Small Company Portfolio 82.63%
Dimensional Investment Group Inc. -
U.S. 6-10 Institutional Portfolio 9.52%
The California Wellness Foundation
6320 Canoga Avenue, Suite 1700
Woodland Hills, CA 91367 7.85%
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THE U.S. LARGE COMPANY SERIES
Compass Capital Funds -
Index Equity Portfolio
c/o PFPC
400 Bellevue Parkway
Wilmington, DE 19809 62.05%
DFA Investment Dimensions Group Inc. -
The U.S. Large Company Portfolio 37.95%
THE DFA ONE-YEAR FIXED INCOME SERIES
DFA Investment Dimensions Group Inc. -
The DFA One-Year Fixed Income Portfolio 99.50%
THE U.S. SMALL CAP VALUE SERIES
DFA Investment Dimensions Group Inc. -
The U.S. Small Cap Value Portfolio 97.04%
THE U.S. LARGE CAP VALUE SERIES
DFA Investment Dimensions Group Inc. -
The U.S. Large Cap Value Portfolio 54.83%
Dimensional Investment Group Inc. -
U.S. Large Cap Value Portfolio III 40.40%
THE DFA INTERNATIONAL VALUE SERIES
BellSouth Corporation
1155 Peachtree Street N.E.
Atlanta, GA 30367 33.98%
Dimensional Investment Group Inc. -
DFA International Value Portfolio 21.88%
DFA Investment Dimensions Group Inc. -
DFA International High Book to Market Portfolio 19.10%
Dimensional Investment Group Inc. -
DFA International Value Portfolio III 17.80%
THE EMERGING MARKETS SERIES
DFA Investment Dimensions Group Inc. -
Emerging Markets Portfolio 99.99%
DFA TWO-YEAR CORPORATE FIXED INCOME SERIES
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Dimensional Investment Group Inc. -
RWB/DFA Two-Year Corporate Fixed Income Portfolio 100%
DFA TWO-YEAR GLOBAL FIXED INCOME SERIES
DFA Investment Dimensions Group Inc. -
DFA Two-Year Global Fixed Income Portfolio 100%
DFA TWO-YEAR GOVERNMENT SERIES
Dimensional Investment Group Inc. -
DFA Two-Year Government Portfolio 100%
ENHANCED U.S. LARGE COMPANY SERIES
DFA Investment Dimensions Group Inc.
Enhanced U.S. Large Company Portfolio 100%
JAPANESE SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc.
Japanese Small Company Portfolio 100%
UNITED KINGDOM SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc.
United Kingdom Small Company Portfolio 100%
PACIFIC RIM SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc.
Pacific Rim Small Company Portfolio 100%
CONTINENTAL SMALL COMPANY SERIES
DFA Investment Dimensions Group Inc.
Continental Small Company Portfolio 100%
(c) Trustees and officers as a group own less than 1% of the Trust's
outstanding stock.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES
__________
*Owner of record only.
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(a) The information provided in response to this item is in addition to the
information provided in response to Item 5(b) in Part A.
David G. Booth and Rex A. Sinquefield are shareholders of the Advisor's
outstanding voting stock and may be considered controlling persons of the
Advisor.
For the services its provides as investment advisor to each Series of the Trust,
the Advisor is paid a monthly fee calculated as a percentage of average net
assets of the Series. For the fiscal years ending November 30, 1993, 1994 and
1995, the Series paid management fees as set forth in the following table:
1993 1994 1995
(000) (000) (000)
U.S. 6-10 Small Company $ 40 $ 46 $ 57
U.S. Large Company $ 7 $ 11 $ 19
DFA One-Year Fixed Income $241 $311 $310
U.S. Small Cap Value $ 94 $459 $976
U.S. Large Cap Value $ 45 $143 $306
DFA International Value n/a $380 $937
Emerging Markets n/a $ 6 $ 30
(b) The information provided in response to this item is in addition to the
information provided in response to Item 5(a) of Part A.
Initially, the investment management agreement with respect to each Series is in
effect for a period of two years. Thereafter, each agreement may continue in
effect for successive annual periods, provided such continuance is specifically
approved at least annually by a vote of the Trust's Board of Trustees or, by a
vote of the holders of a majority of the Series' outstanding voting securities,
and in either event by a majority of the trustees who are not parties to the
agreement or interested persons of any such party (other than as trustees of the
Trust), cast in person at a meeting called for that purpose. An investment
management agreement may be terminated without penalty at any time by the Series
or by the Advisor on 60 days' written notice and will automatically terminate in
the event of its assignment as defined in the 1940 Act.
(c) From December 1, 1993 through August 8, 1996, the Advisor waived its fee
under the Investment Management Agreement with
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respect to The DFA International Value Series to the extent necessary to keep
the cumulative annual expenses of the Series to not more than .45% of average
net assets of the Series on an annualized basis.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
(g) Not applicable.
(h) Boston Safe Deposit and Trust Company, Princess House, 1 Suffolk Lane,
London EC4R 0AN, England, serves as custodian for The DFA International Value,
Japanese, United Kingdom, Pacific Rim, Continental, The DFA Two-Year Global
Fixed Income and The Enhanced U.S. Large Company Series (co-custodian with PNC
Bank, N.A.). The Chase Manhattan Bank, 4 Chase Metrotech Center, Brooklyn, NY
11245, serves as custodian for The Emerging Markets Series and The Emerging
Markets Small Cap Series. PNC Bank, N.A., 200 Stevens Drive, Airport Business
Center, Lester, PA 19113, serves as custodian for all other Series. The
custodians do not participate in decisions relating to the purchase and sale of
portfolio securities.
Coopers & Lybrand L.L.P., 2400 Eleven Penn Center, Philadelphia, Pennsylvania
19103, is the Trust's independent accountant.
(i) Not applicable.
ITEM 17. BROKERAGE ALLOCATION
(a) The following table depicts brokerage commissions paid by the following
Series:
BROKERAGE COMMISSIONS
FISCAL YEARS ENDED NOVEMBER 30, 1993, 1994 AND 1995
1993 1994 1995
U.S. 6-10 Small Company $274,151 $ 247,096 $ 361,784
U.S. Large Company $ 41,393 $ 10,610 $ 15,289
U.S. Small Cap Value $328,869 $1,471,320 $1,025,415
U.S. Large Cap Value $134,312 $ 361,154 $ 415,802
DFA International Value n/a $ 623,031 $ 542,306
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Emerging Markets n/a $ 79,105 $ 166,601
The substantial increases or decreases in the amount of brokerage commissions
paid by certain Series from year to year indicated in the foregoing table
resulted from increases or decreases in the amount of securities bought and sold
by those Series.
During fiscal year 1993, The U.S. 6-10 Small Company Series paid commissions of
$9,793 to Kemper Capital Markets, Inc., a securities firm which has been
succeeded by Kemper Securities, Inc., an affiliate of Kemper Financial Services,
Inc., which owned approximately 15.6% of the Advisor's outstanding stock during
that year. Such commissions represented .0126% of the total commissions paid by
the Trust for 1993 and the total value of transactions as to which such
commissions relate were $1,381,561 or .0071% of the Fund's total value of
transactions involving payment of commissions during the fiscal year ended
November 30, 1993. No commissions were paid to affiliates or affiliates of
affiliates during fiscal years 1994 or 1995.
The DFA One-Year Fixed Income Series acquires and sells securities on a net
basis with dealers which are major market markers in such securities. The
Investment Committee of the Advisor selects dealers on the basis of their size,
market making and credit analysis ability. When executing portfolio
transactions, the Advisor seeks to obtain the most favorable price for the
securities being traded among the dealers with whom such Series effects
transactions.
Portfolio transactions will be placed with a view to receiving the best price
and execution.
The OTC companies eligible for purchase by The U.S. 6-10 Small Company Series
and The U.S. Small Cap Value Series are thinly traded securities. Therefore,
the Advisor believes it needs maximum flexibility to effect OTC trades on a best
execution basis. To that end, the Advisor places buy and sell orders with
market makers, third market brokers, Instinet and with brokers on an agency
basis when the Advisor determines that the securities may not be available from
other sources at a more favorable price. Third market brokers enable the
Advisor to trade with other institutional holders directly on a net basis. This
allows the Advisor to sometimes trade larger blocks than would be possible by
going through a single market maker.
Instinet is an electronic information and communication network whose
subscribers include most market makers as well as many institutions. Instinet
charges a commission for each trade executed on its system. On any given trade,
The U.S. 6-10 Small Company Series and the U.S. Value Series, by trading through
Instinet, would pay a spread to a dealer on the other side of the
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trade plus a commission to Instinet. However, placing a buy (or sell) order on
Instinet communicates to many (potentially all) market makers and institutions
at once. This can create a more complete picture of the market and thus
increase the likelihood that the Series can effect transactions at the best
available prices.
During the fiscal year ended November 30, 1995, the Series paid commissions for
securities transactions to brokers which provided market price monitoring
services, market studies and research services to the Series as follows:
VALUE OF
SECURITIES BROKERAGE
TRANSACTIONS COMMISSIONS
U.S. 6-10 Small Company $ 45,143,939 $ 176,059
U.S. Large Company 0 0
U.S. Small Cap Value $ 99,862,560 $ 493,455
U.S. Large Cap Value $155,807,866 $ 221,667
DFA International Value $ 34,304,000 $ 85,760
Emerging Markets 0 0
TOTAL: $335,118,365 $ 976,941
------------ -----------
------------ -----------
(b) Not applicable.
(c) The Series will seek to acquire and dispose of securities in a manner which
would cause as little fluctuation in the market prices of stocks being purchased
or sold as possible in light of the size of the transactions being effected, and
brokers will be selected with this goal in view. The Advisor monitors the
performance of brokers which effect transactions for the Series to determine the
effect that the Series' trading has on the market prices of the securities in
which they invest. The Advisor also checks the rate of commission being paid by
the Series to their brokers to ascertain that they are competitive with those
charged by other brokers for similar services. Transactions also may be placed
with brokers who provide the Advisor with investment research, such as reports
concerning individual issuers, industries and general economic and financial
trends and other research services. The Investment Management Agreements permit
the Advisor knowingly to pay commissions on such transactions which are greater
than another broker might charge if the Advisor, in good faith, determines that
the
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commissions paid are reasonable in relation to the research or brokerage
services provided by the broker or dealer when viewed in terms of either a
particular transaction or the Advisor's overall responsibilities to the Trust.
Brokerage transactions may be placed with securities firms that are affiliated
with an affiliate of the Advisor. Commission paid on such transactions would be
commensurate with the rate of commissions paid on similar transactions to
brokers that are not so affiliated.
(d) Not applicable.
(e) Not applicable.
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES
(a) The information provided in response to this item is in addition to the
information provided in response to Item 6(a) in Part A.
The Trust does not intend to hold annual meetings; it may, however, hold a
meeting for such purposes as changing fundamental investment limitations,
approving a new investment management agreement or any other matters which are
required to be acted on by shareholders under the 1940 Act. Shareholders may
receive assistance in communicating with other shareholders in connection with
the election or removal of Trustees similar to the provisions contained in
Section 16(c) of the 1940 Act.
(b) Not applicable.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF
SECURITIES BEING OFFERED
The information provided in response to this item is in addition to the
information provided in response to Items 7 and 8 in Part A.
(a) AND (b) The Trust will accept purchase and redemption orders on each day
that the NYSE is open for business, regardless of whether the Federal Reserve
System is closed. However, no purchases by wire may be made on any day that the
Federal Reserve System is closed. The Trust will generally be closed on days
that the NYSE is closed. The NYSE is scheduled to be open Monday through Friday
throughout the year except for days closed to recognize New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas Day. The Federal Reserve System is closed on the
same days as the NYSE, except that it is open on Good Friday and closed on
Martin Luther King, Jr. Day, Columbus Day and Veterans' Day. Orders for
redemptions and purchases will not be processed if the Trust is closed. The TSE
is closed on the following days in 1996: January 1, 2, 3 and 15, February 12,
March 20, April 29, May 3, 4
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and 6, September 16 and 23, October 10, November 4 and 23 and December 23 and
31. Orders for the purchase and redemption of shares of the Japanese Series
received on those days will be priced as of the close of the NYSE on the next
day that the TSE is open for trading.
The Trust reserves the right, in its sole discretion, to suspend the offering of
shares of any or all Series or reject purchase orders when, in the judgement of
management, such suspension or rejection is in the best interest of the Trust or
a Series. Securities accepted in exchange for shares of a Series will be
acquired for investment purposes and will be considered for sale under the same
circumstances as other securities in the Portfolio.
The Trust may suspend redemption privileges or postpone the date of payment:
(1) during any period when the NYSE is closed, or trading on the Exchange is
restricted as determined by the SEC, (2) during any period when an emergency
exists as defined by the rules of the SEC as a result of which it is not
reasonably practicable for the Trust to dispose of securities owned by it, or
fairly to determine the value of its assets and (3) for such other periods as
the SEC may permit.
(c) The Trust has filed a notice of election pursuant to Rule 18f-1 under the
1940 Act. (SEE Item 8(a) of Part A.)
ITEM 20. TAX STATUS
The information provided in response to this item is in addition to the
information provided in response to Item 6 in Part A.
FEDERAL TAX TREATMENT OF OPTIONS, FUTURES CONTRACTS AND SIMILAR POSITIONS
The investment by a Series in options, futures contracts and options on futures
contracts are subject to many complex and special tax rules. For example,
options on stock and on narrowed-based stock indexes will generally produce
long-term or short-term capital gain or loss upon the exercise, lapse, or
closing out of the option or sale of the underlying stock or security. By
contrast, the treatment by a Series of certain other options, futures and
forward contracts is generally governed by Section 1256 of the Code. These
"Section 1256" positions generally include listed options on debt securities,
options on broad-based stock indexes, options on futures contracts, regulated
futures contracts and certain foreign currency contracts and options thereon.
Absent a tax election to the contrary, each such Section 1256 position held by a
Series will be marked-to-market (i.e., treated as if it were sold for fair
market value) on the last business
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day of a Series' fiscal year, and all gain or loss associated with fiscal year
transactions and mark-to-market positions at fiscal year end (except certain
currency gain or loss covered by Section 988 of the Code) will generally be
treated as 60% long-term capital gain or loss and 40% short-term capital gain or
loss. The effect of Section 1256 mark-to-market rules may be to accelerate
income or to convert what otherwise would have been long-term capital gains into
short-term capital gains or short-term capital losses into long-term capital
losses within a Series. The acceleration of income on Section 1256 positions
may require a Series to accrue taxable income without the corresponding receipt
of cash. In order to generate cash to satisfy the distribution requirements of
the Code, a Series may be required to dispose of portfolio securities that it
otherwise would have continued to hold or to use cash flows from other sources
such as the sale of a Series' shares. In these ways, any or all of these rules
may affect both the amount, character and timing of income distributed to
shareholders by a Series.
When a Series holds an option or contract which substantially diminishes a
Series' risk of loss with respect to another position of a Series (as might
occur in some hedging transactions), this combination of positions could be
treated as a "straddle" for tax purposes, resulting in possible deferral of
losses, adjustments in the holding periods of a Series' securities and
conversion of short-term capital losses into long-term capital losses. Certain
tax elections exist for mixed straddles (i.e., straddles comprised of at least
one Section 1256 position and at least one non-Section 1256 position) which may
reduce or eliminate the operation of these straddle rules.
The Series taxable as regulated investment companies are also subject to the
requirement that less than 30% of their annual gross income be derived from the
sale or other disposition of securities and certain other investments held for
less than three months ("short-short income"). This requirement may limit a
Series ability to engage in options, straddles, hedging transactions and forward
or futures contracts because these transactions are often consummated in less
than three months, may require the sale of portfolio securities held less than
three months and may, as in the case of short sales of portfolio securities,
reduce the holding periods of certain securities within a Series, resulting in
additional short-short income for a Series.
A Series will monitor its transactions in such options and contracts and may
make certain other tax elections in order to mitigate the effect of the above
rules and to prevent disqualification of a Series as a regulated investment
company under Subchapter M of the Code.
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ITEM 21. UNDERWRITERS
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
ITEM 22. CALCULATION OF PERFORMANCE DATA
(a) Not applicable.
(b) Following are quotations of the annualized percentage total returns for the
one-, five-, and ten-year periods ended May 31, 1996 (as applicable) using the
standardized method of calculation required by the SEC. For those Series in
effect for less than one, five or ten years, the time periods during which the
Series have been active have been substituted for the periods stated (which in
no case extends prior to the effective date of the registration statement
relating to a particular Series).
One Five Ten
--- ---- ---
Year Years Years
----- ----- -----
The U.S. 6-10 Small Company 12.20 13.19 n/a
Series 43 Months
The U.S. Large Company 18.44 13.84 n/a
Series 43 Months
The DFA One-Year Fixed 5.58 5.03 n/a
Income Series 43 Months
The U.S. Small Cap Value 11.86 16.50 n/a
Series 43 Months
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The U.S. Large Cap Value 13.48 14.71 n/a
Series 43 Months
The DFA International Value 10.63 6.88 n/a
Series 30 Months
The Emerging Markets Series 3.85 6.90 n/a
28 Months
The DFA Two-year Global 7.35 n/a n/a
Fixed Income Series 5 Mos.
As the following formula indicates, the annualized total return is
determined by finding the annualized total return over the stated time period
that would equate a hypothetical initial purchase order of $1,000 to its
redeemable value (including capital appreciation/depreciation and dividends and
distributions paid and reinvested less any fees charged to a shareholder
account) at the end of the stated time period. The calculation assumes that all
dividends and distributions are reinvested at the public offering price on the
reinvestment dates during the period. The quotation assumes the account was
completely redeemed at the end of each period and the deduction of all
applicable charges and fees. According to the SEC formula:
(n)
P(1 + T) = ERV
Where:
p = a hypothetical initial payment of $1,000
T = annualized compound rate of return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the one-, five-, and ten-year periods at the end of the one-,
five-, and ten-year periods (or fractional portion thereof).
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ITEM 23. FINANCIAL STATEMENTS
The audited financial statements and financial highlights of the Trust for its
fiscal year ended November 30, 1995, as set forth in the Trust's annual report
to shareholders, and the report of Coopers & Lybrand L.L.P., independent
accountants, also appearing therein, are incorporated herein by reference. The
audited annual report does not contain any data regarding The Emerging Markets
Small Cap, The Enhanced U.S. Large Company, The DFA Two-Year Corporate Fixed
Income, Two-Year Global Fixed Income, Two-Year Government, Japanese, United
Kingdom, Pacific Rim or Continental Series because such Series had not commenced
operations as of November 30, 1995. The unaudited financial statements and
financial highlights of the Trust for the period ended May 31, 1996, as set
forth in the Trust's semi-annual report to shareholders, are incorporated herein
by reference. The unaudited semi-annual report does not contain any data
regarding The Emerging Markets Small Cap, Enhanced U.S. Large Company, DFA Two-
Year Corporate Fixed Income, DFA Two-Year Government, Japanese, United Kingdom,
Pacific Rim or Continental Series because such Series had not commenced
operations as of May 31, 1996.
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THE DFA INVESTMENT TRUST COMPANY
FORM N-1A
PART C: OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements**
(b) Exhibits:
The following exhibits are attached hereto, except as otherwise
noted:
(1) (i) Agreement and Declaration of Trust
INCORPORATED BY
REFERENCE TO:
Filing: Amendment
No. 5 to the
Registration
Statement of
Registrant on Form
N-1A
File No.: 811-7436
Filing Date: December 1, 1995
(ii) Certificate of Trust*
(iii) Certificate of Amendment of Certificate
of Trust*
(2) By-Laws*
(3) None
(4) Not applicable
(5) (i) Investment Management Agreement re The U.S. 6-10 Small
Company Series*
(ii) Investment Management Agreement re The U.S. Large
Company Series
INCORPORATED BY REFERENCE TO: Filing: Amendment No. 5
to the Registration Statement of Registrant on Form N-
1A
File No.: 811-7436
Filing Date: December 1, 1995
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(iii) Investment Management Agreement re The DFA One-Year
Fixed Income Series*
(iv) Investment Management Agreement re The U.S. Large Cap
High Book to Market Series*
(v) Investment Management Agreement re The U.S. Small Cap
High Book to Market Series*
(vi) Investment Management Agreement re The DFA
International Value Series***
(vii) Investment Management Agreement re The Emerging Markets
Series****
(viii) Investment Management Agreement re: The Enhanced U.S.
Large Company Series
INCORPORATED BY REFERENCE TO: Filing: Amendment No. 6
to the Registration Statement of Registrant on Form N-
1A
File No.: 811-7436
Filing Date: February 7, 1996
(ix) Investment Management Agreement re: The DFA Two-Year
Corporate Fixed Income Series
INCORPORATED BY REFERENCE TO: Filing: Amendment No. 6
to the Registration Statement of Registrant on Form N-
1A
File No.: 811-7436
Filing Date: February 7, 1996
(x) Investment Management Agreement re: The DFA Two-Year
Global Fixed Income Series
INCORPORATED BY REFERENCE TO: Filing: Amendment No. 6
to the Registration Statement of Registrant on Form N-
1A
File No.: 811-7436
Filing Date: February 7, 1996
(xi) Investment Management Agreement re: The DFA Two-Year
Government Series
INCORPORATED BY REFERENCE TO: Filing: Amendment No. 6
to the Registration Statement of Registrant on Form N-
1A
File No.: 811-7436
Filing Date: February 7, 1996
(xii) Investment Management Agreement re: The Japanese Small
Company Series
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INCORPORATED BY REFERENCE TO: Filing: Amendment No. 7
to the Registration Statement of Registrant on Form N-
1A
File No.: 811-7436
Filing Date: August 7, 1996
(xiii) Investment Management Agreement re: The United Kingdom
Small Company Series
INCORPORATED BY REFERENCE TO: Filing: Amendment No. 7
to the Registration Statement of Registrant on Form N-
1A
File No.: 811-7436
Filing Date: August 7, 1996
(xiv) Investment Management Agreement re: The Pacific Rim
Small Company Series
INCORPORATED BY REFERENCE TO: Filing: Amendment No. 7
to the Registration Statement of Registrant on Form N-
1A
File No.: 811-7436
Filing Date: August 7, 1996
(xv) Investment Management Agreement re: The Continental
Small Company Series
INCORPORATED BY REFERENCE TO: Filing: Amendment No. 7
to the Registration Statement of Registrant on Form N-
1A
File No.: 811-7436
Filing Date: August 7, 1996
(xvi) Sub-Advisory Agreement with DFA Australia Pty Limited
re: The Japanese Small Company Series
INCORPORATED BY REFERENCE TO: Filing: Amendment No. 7
to the Registration Statement of Registrant on Form
N-1A
File No.: 811-7436
Filing Date: August 7, 1996
(xvii) Sub-Advisory Agreement with Dimensional Fund Advisors
Ltd. re: The United Kingdom Small Company Series
INCORPORATED BY REFERENCE TO: Filing: Amendment No. 7
to the Registration Statement of Registrant on Form N-
1A
File No.: 811-7436
Filing Date: August 7, 1996
(xviii) Sub-Advisory Agreement with DFA Australia Pty Limited
re: The Pacific Rim Small Company Series
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INCORPORATED BY REFERENCE TO: Filing: Amendment No. 7
to the Registration Statement of Registrant on Form N-
1A
File No.: 811-7436
Filing Date: August 7, 1996
(xix) Sub-Advisory Agreement with Dimensional Fund Advisors
Ltd. re: The Continental Small Company Series
INCORPORATED BY REFERENCE TO: Filing: Amendment No. 7
to the Registration Statement of Registrant on Form N-
1A
File No.: 811-7436
Filing Date: August 7, 1996
(xx) Investment Management Agreement re: The Emerging
Markets Small Cap Series
(6) Agreement with DFA Securities Inc.*
(7) None
(8) (i) Form of Custodian Agreement between Registrant and
Provident National Bank*
(ii) Form of Custodian Agreement between Registrant and
Boston Safe Deposit and Trust Company***
(iii) Form of Custodian Agreement between Registrant and
Chase Manhattan Bank, N.A.****
(9) (i) Form of Transfer Agency Agreement with Provident
Financial Processing Corporation*
(ii) Form of Administration and Accounting Services
Agreement with Provident Financial Processing
Corporation*
(10) Not applicable
(11) Not applicable
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15) Not applicable
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(16) Not applicable
(17) Not applicable
(18) Not applicable
_________________________
* Incorporated by reference to the initial registration statement filed on
Form N-1A on January 15, 1993.
** Filed electronically via the EDGAR system on January 26, 1996 as the
Fund's annual report to shareholders for the fiscal year ended November
30, 1995; and filed electronically via the EDGAR system on or about
August 1, 1996 as the Fund's semi-annual report to shareholders for the
period ended May 31, 1996, pursuant to Rule 30b2-1 under the 1940 Act and
incorporated in Part B by reference.
*** Incorporated by reference to Amendment Number 1 to the registration
statement filed on Form N-1A on December 1, 1993.
**** Incorporated by reference to Amendment Number 2 to the registration
statement filed on Form N-1A on January 11, 1994.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
As disclosed in Items 6(b) and 15(b), as of August 31, 1996, each Series
is controlled by one or more corresponding Portfolios of DFA IDG and DIG, each a
Maryland corporation registered under the Investment Company Act of 1940. In
addition, as of August 31, 1996, The U.S. Large Company Series is controlled by
the Index Equity Portfolio of Compass Capital Funds (the "Compass Index Equity
Portfolio"). If a person beneficially owns more than 25% of the outstanding
voting securities of a DFA IDG or DIG Portfolio that invests all of its
investable assets in a corresponding Series of the Trust, then that Portfolio
and the Series in which it invests may be deemed to be under the common control
of such person. Furthermore, if a person beneficially owns more than 25% of the
Compass Index Equity Portfolio, then that Portfolio and The U.S. Large Company
Series may be deemed to be under the common control of such person. As of
August 31, 1996, the following beneficially owned more than 25% of the
outstanding voting securities of DFA IDG or DIG:
DFA IDG
6-10 SMALL COMPANY PORTFOLIO
Washington University Endowment Fund
7425 Forsyth Boulevard
St. Louis, MO 63105-2103 28.54%
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DFA TWO-YEAR CORPORATE FIXED INCOME PORTFOLIO
Dimensional Fund Advisors Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401 100%
DFA TWO-YEAR GOVERNMENT PORTFOLIO
Dimensional Fund Advisors Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401 100%
JAPANESE SMALL COMPANY PORTFOLIO
BellSouth Corporation
1155 Peachtree Street N.E.
Atlanta, GA 30367 33.01%
UNITED KINGDOM SMALL COMPANY PORTFOLIO
BellSouth Corporation
1155 Peachtree Street N.E.
Atlanta, GA 30367 36.82%
CONTINENTAL SMALL COMPANY PORTFOLIO
BellSouth Corporation
1155 Peachtree Street N.E.
Atlanta, GA 30367 35.95%
PACIFIC RIM SMALL COMPANY PORTFOLIO
BellSouth Corporation
1155 Peachtree Street N.E.
Atlanta, GA 30367 63.03%
DIG
6-10 INSTITUTIONAL PORTFOLIO
Washington University Endowment Fund
7425 Forsyth Boulevard
St. Louis, MO 63105-2103 61.87%
NI-GAS Trust Savings Investment and Thrift Plan
P.O. Box 190
Aurora, IL 60507 38.13%
ONE-YEAR FIXED INCOME II PORTFOLIO
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Home Depot Future Builders
c/o Wachovia Bank of N. Carolina
301 N. Main Street
Winston-Salem, NC 27150 59.98%
U.S. SMALL CAP VALUE PORTFOLIO II
BellSouth Corporation 401(k)
1155 Peachtree Street N.E.
Atlanta, GA 30367 100%
U.S. LARGE CAP VALUE PORTFOLIO II
BellSouth Corporation 401(k)
1155 Peachtree Street N.E.
Atlanta, GA 30367 100%
DFA INTERNATIONAL VALUE PORTFOLIO II
BellSouth Corporation 401(k)
1155 Peachtree Street N.E.
Atlanta, GA 30367 100%
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
Title of Class
--------------
(Shares of Beneficial Interest, Number of Record Holders
Par Value $.01) as of August 31, 1996
------------------------
The U.S. 6-10 Small Company Series 3
The U.S. Large Company Series 3
The DFA One-Year Fixed Income Series 2
The U.S. Small Cap Value Series 2
The U.S. Large Cap Value Series 4
The DFA International Value Series 8
The Emerging Markets Series 2
The Enhanced U.S. Large Company Series 1
The DFA Two-Year Corporate Fixed Income Series 2
The DFA Two-Year Global Fixed Income Series 1
The DFA Two-Year Government Series 3
The Japanese Small Company Series 2
The United Kingdom Small Company Series 2
The Pacific Rim Small Company Series 2
The Continental Small Company Series 2
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ITEM 27. INDEMNIFICATION.
Reference is made to Article VII of the Registrant's Agreement and
Declaration of Trust (Exhibit 24(b)(1)(i)) and to Article X of the Registrant's
By-Laws (Exhibit 24(b)(2)), which are incorporated herein by reference.
Pursuant to Rule 484 under the Securities Act of 1933, as amended, the
Registrant furnishes the following undertaking:
"Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue."
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Registrant's Investment Advisor (the "Advisor") was organized in May, 1981. The
principal place of business of the Advisor is 1299 Ocean Avenue, 11th Floor,
Santa Monica, California 90401. The Advisor is engaged in the business of
providing investment advice primarily to institutional investors.
The business, profession, vocation or employment of a substantial nature in
which each director and officer of the Advisor and DFAL is or has been, during
the past two fiscal years, engaged for his own account in the capacity of
director, officer, employee, partner or trustee is set forth below. As used
below, "DFA Entities" refers to the following: Dimensional Fund Advisors Inc.,
Dimensional Fund Advisors Ltd., DFA Australia Pty Limited, DFA Investment
Dimensions Group Inc. (Registered Investment Company), Dimensional Emerging
Markets Fund Inc. (Registered Investment Company), Dimensional Investment Group
Inc. (Registered Investment Company) and DFA Securities Inc.
David G. Booth is Chairman - Chief Executive Officer, President and a Director
of the Advisor and DFA Investment Dimensions Group Inc. Mr. Booth is President,
Chairman - Chief Executive Officer
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and a Trustee of the Registrant. Mr. Booth is also Chairman - Chief Executive
Officer and a Director of Dimensional Investment Group Inc., Dimensional
Emerging Markets Fund Inc., DFA Securities Inc. and DFA Australia Pty Limited
("DFA Australia"). He is Chairman and Director of Dimensional Fund Advisors
Ltd. ("DFAL").
Rex A. Sinquefield is Chairman - Chief Investment Officer and a Director of the
Advisor and Chairman - Chief Investment Officer and a Trustee of the Registrant.
He is also Chairman - Chief Investment Officer and a Director of DFA Investment
Dimensions Group Inc., Dimensional Investment Group Inc., Dimensional Emerging
Markets Fund, Inc., DFA Securities Inc. and DFA Australia and Chairman, Chief
Executive Officer and Director of DFAL.
Eugene Francis Fama, a Director of the Advisor, is the Robert R. McCormick
Distinguished Service Professor of Finance, and has been engaged in teaching and
research in finance and economics at the Graduate School of Business, University
of Chicago, Chicago, Illinois since September, 1963. Mr. Fama also is a
Director of DFA Securities Inc.
John Andrew McQuown, a Director of the Advisor, has been self employed since
1974 as an entrepreneur, financier and consultant to major financial
institutions. He is also a Director of Mortgage Information Corporation, KMV
Corporation, Microsource, Inc. and DFA Securities Inc.
Lloyd Stockel, a Director of the Advisor, is a private investor and a retired
general partner of Goldman Sachs & Co. and a Director of DFA Securities Inc.
Arthur Barlow is a Vice President of Registrant and all DFA Entities.
Truman Clark, is a Vice President of Registrant and all DFA Entities. Mr. Clark
was a consultant until October, 1995 and Principal and Manager of Product
Development, Wells Fargo Nikko Investment Advisors, San Francisco, CA from 1990-
1994.
Maureen Connors is a Vice President of Registrant and all DFA Entities.
Robert Deere is a Vice President of the Registrant and all DFA Entities.
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Irene R. Diamant is a Vice President and Secretary of Registrant and all DFA
Entities except Dimensional Fund Advisors Ltd. for which she is Vice President.
Margaret East is Secretary of Dimensional Fund Advisors Ltd.
Eugene Fama, Jr. is a Vice President of Registrant and all DFA Entities.
David Plecha is a Vice President of Registrant and all DFA Entities.
George Sands is a Vice President of Registrant and DFA Entities. Mr. Sands was
a Managing Director of Asset Strategy Consulting in Los Angeles, CA from March
1991 to August 1992 and a Vice President of Wilshire Associates in Santa Monica,
CA from 1985 to February 1991.
Michael T. Scardina is a Vice President, Chief Financial Officer, Controller and
Treasurer of the Registrant and all DFA Entities.
Cem Severoglu is a Vice President of Registrant and all DFA Entities.
Jeanne C. Sinquefield is Executive Vice President of the Registrant and all DFA
Entities.
Daniel Wheeler is a Marketing Officer of the Advisor.
David Schneider is a Marketing Officer of the Advisor.
Lawrence Spieth is a Marketing Officer of the Advisor.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Not applicable
(b) Registrant distributes its own shares. It has entered
into an agreement, previously filed as Exhibit No. 6 to the
Registration Statement, which provides that DFA Securities Inc., 1299
Ocean Avenue, 11th Floor, Santa Monica, California 90401, will
supervise the sale of Registrant's shares.
(c) Not applicable
ITEM 30. LOCATIONS OF ACCOUNTS AND RECORDS.
All accounts and records are maintained by PFPC Inc., 400 Bellevue Parkway,
Wilmington, DE 19809.
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ITEM 31. MANAGEMENT SERVICES.
There are no management-related service contracts not discussed in Part A
or Part B.
ITEM 32. UNDERTAKING.
(a) Not applicable
(b) Not applicable
(c) The Registrant undertakes to furnish each person to whom this Post-
Effective Amendment is delivered a copy of its latest annual report to
shareholders, upon request and without charge.
(d) The Registrant hereby undertakes to promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
trustee or trustees when requested in writing to do so by the record holders of
not less than 10 per centum of the Registrant's outstanding shares and to assist
its shareholders in accordance with the requirements of Section 16(c) of the
Investment Company Act of 1940 relating to shareholder communications.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Investment Company Act of 1940, as
amended, the Registrant has duly caused this amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Santa Monica, the State of California, as of the 18th
day of October, 1996.
THE DFA INVESTMENT TRUST COMPANY
By:/s/ David G. Booth
---------------------------------
David G. Booth
President
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<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
99(b)(5)(xx) Investment Management Agreement re: The Emerging Markets
Small Cap Series
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<PAGE>
Exhibit NO. 99(b)(5)(XX)
INVESTMENT MANAGEMENT AGREEMENT
AGREEMENT made as of this 18th day of October, 1996, by and between THE DFA
INVESTMENT TRUST COMPANY, a Delaware business trust (the "Trust") and
DIMENSIONAL FUND ADVISORS INC., a Delaware corporation (the "Manager").
1. DUTIES OF ADVISOR
The Trust hereby employs the Manager to manage the investment and
reinvestment of the assets of THE EMERGING MARKETS SMALL CAP SERIES of the Trust
(the "Series"), to continuously review, supervise and administer the Series'
investment program, to determine in its discretion the securities to be
purchased or sold and the portion of the Series' assets to be uninvested, to
provide the Trust with records concerning the Manager's activities which the
Trust is required to maintain, and to render regular reports to the Trust's
officers and the Board of Trustees of the Trust, all in compliance with the
objectives, policies and limitations set forth in the Trust's registration
statement and applicable laws and regulations. The Manager accepts such
employment and agrees to provide, at its own expense, the office space,
furnishings and equipment and the personnel required by it to perform the
services described herein on the terms and for the compensation provided herein.
2. PORTFOLIO TRANSACTIONS
The Manager is authorized to select the brokers or dealers that will
execute the purchases and sales of portfolio securities for the Series and is
directed to use its best efforts to obtain the best available price and most
favorable execution, except as prescribed herein. It is understood that the
Manager will not be deemed to have acted unlawfully, or to have breached a
fiduciary duty to the Trust or in respect of the Series, or be in breach of any
obligation owing to the Trust or in respect of the Series under this Agreement,
or otherwise, solely by reason of its having caused the Series to pay a member
of a securities exchange, a broker or a dealer a commission for effecting a
securities transaction for the Series in excess of the amount of commission
another member of an exchange, broker or dealer would have charged if the
Manager determines in good faith that the commission paid was reasonable in
relation to the brokerage or research services provided by such member, broker
or dealer, viewed in terms of that particular transaction or the Manager's
overall responsibilities with respect to its accounts, including the Trust, as
to which it exercises investment discretion. The
<PAGE>
Manager will promptly communicate to the officers and directors of the Trust
such information relating to transactions for the Series as they may reasonably
request.
3. COMPENSATION OF THE MANAGER
For the services to be rendered by the Manager as provided in Section
1 of this Agreement, the Trust shall pay to the Manager, at the end of each
month, a fee equal to one-twelfth of .20 percent of the net assets of the
Series. In the event that this Agreement is terminated at other than a
month-end, the fee for such month shall be prorated.
4. OTHER SERVICES
At the request of the Trust, the Manager, in its discretion, may make
available to the Trust office facilities, equipment, personnel and other
services. Such office facilities, equipment, personnel and service shall be
provided for or rendered by the Manager and billed to the Trust at the Manager's
cost and, where applicable, the cost thereof shall be apportioned among the
several Series of the Trust proportionate to their respective utilization
thereof.
5. REPORTS
The Trust and the Manager agree to furnish to each other information
with regard to their respective affairs as each may reasonably request.
6. STATUS OF THE MANAGER
The services of the Manager to the Trust or in respect of the Series,
are not to be deemed exclusive, and the Manager shall be free to render similar
services to others as long as its services to the Trust or in respect of the
Series, are not impaired thereby. The Manager shall be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Trust in any way or
otherwise be deemed an agent of the Trust.
7. LIABILITY OF MANAGER
No provision of this Agreement shall be deemed to protect the Manager
against any liability to the Trust or its shareholders to which it might
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or the reckless disregard of its
obligations under this Agreement.
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<PAGE>
8. PERMISSIBLE INTERESTS
Subject to and in accordance with the agreement and declaration of
trust of the Trust and the charter of the Manager, trustees, officers, and
shareholders of the Trust are or may be interested in the Manager (or any
successor thereof) as directors, officers or shareholders, or otherwise;
directors, officers, agents and shareholders of the Manager are or may be
interested in the Trust as trustees, officers, shareholders or otherwise; and
the Manager (or any successor) is or may be interested in the Trust as a
shareholder or otherwise and the effect of any such interrelationships shall be
governed by said agreement and declaration of trust and charter and the
provisions of the Investment Company Act of 1940.
9. DURATION AND TERMINATION
This Agreement shall become effective on October 18, 1996 (the
"Effective Date") and shall continue in effect until December 23, 1996, and
thereafter, only if such continuance is approved at least annually by a vote of
the Trust's Board of Trustees, including the vote of a majority of the trustees
who are not parties to this Agreement or interested persons of any such party,
cast in person, at a meeting called for the purpose of voting such approval. In
addition, the question of continuance of this Agreement may be presented to the
shareholders of the Trust; in such event, such continuance shall be effected
only if approved by the affirmative vote of the holders of a majority of the
outstanding voting securities of the Series.
This Agreement may at any time be terminated without payment of any
penalty either by vote of the Board of Trustees of the Trust or by vote of the
holders of a majority of the outstanding voting securities of the Series, on
sixty days written notice to the Manager.
This Agreement shall automatically terminate in the event of its
assignment.
This Agreement may be terminated by the Manager after ninety days
written notice to the Trust.
Any notice under this Agreement shall be given in writing, addressed
and delivered, or mailed postpaid, to the other party at any office of such
party.
As used in this Section 9, the terms "assignment," "interested
persons," and a "vote of the holders of a majority of the outstanding
securities" shall have the respective meanings set forth in Section 2(a)(4),
Section 2(a)(19), Section 2(a)(42) of the Investment Company Act of 1940 and
Rule l8f-2 thereunder.
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<PAGE>
10. SEVERABILITY
If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be
executed as of this 18th day of October, 1996.
DIMENSIONAL FUND THE DFA INVESTMENT TRUST
ADVISORS INC. COMPANY
By: By:
--------------------------- ---------------------------
Chairman-Chief President
Investment Officer
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